NATIONAL AUDIT DEPARTMENTMALAYSIA

AUDITOR GENERAL’S REPORTGOVERNMENT’S FINANCIAL STATEMENT,

FINANCIAL MANAGEMENT FOR THE YEAR 2013 ANDACTIVITIES OF THE FEDERAL MINISTRIES/DEPARTMENTS

AND MANAGEMENT OF THE GOVERNMENT COMPANIESSERIES 3

www.aud i t . gov .my

NATIONAL AUDIT DEPARTMENT MALAYSIANo. 15, Level 1-5,

Persiaran Perdana, Presint 2, Pusat Pentadbiran Kerajaan Persekutuan

62518 Putrajaya

WJD004153 Cover.indd 1 11/5/14 1:38 PM

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SYNOPSIS

AUDITOR GENERAL’S REPORT FOR THE YEAR 2013

THE AUDIT OF THE FEDERAL GOVERNMENT’S FINANCIAL STATEMENT,

FINANCIAL MANAGEMENT, ACTIVITIES OF THE FEDERAL MINISTRIES/DEPARTMENTS AND MANAGEMENT OF THE GOVERNMENT COMPANIES

NATIONAL AUDIT DEPARTMENT MALAYSIA

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CONTENTS

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CONTENTS

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CONTENTS v

SECTION I THE FEDERAL GOVERNMENT’S FINANCIAL STATEMENT AND FINANCIAL MANAGEMENT OF THE FEDERAL MINISTRIES/DEPARTMENTS

PREFACE 5

SYNOPSIS 13

PART I

CERTIFICATION OF THE FEDERAL GOVERNMENT‟S FINANCIAL STATEMENT

1. Certification Of The Federal Government‟s Financial Statement For The Year Ended 31 December 2013 15

PART II FINANCIAL MANAGEMENT OF THE FEDERAL GOVERNMENT

2. Overall Financial Management Performance 15 3. Financial Management Of The Federal Ministries And Departments 16

POSTSCRIPT 19

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SECTION II

ACTIVITIES OF THE FEDERAL MINISTRIES / DEPARTMENTS AND MANAGEMENT OF THE GOVERNMENT COMPANIES

PREFACE 29

SYNOPSIS 35

PART 1

IMPLEMENTATION OF ACTIVITIES BY THE FEDERAL MINISTRIES/DEPARTMENTS

MINISTRY OF FINANCE

Accountant General’s Department Of Malaysia

1. Management Of Unclaimed Moneys 37 Inland Revenue Board Of Malaysia

2. Real Property Gains Tax 40 3. Management Of Tax Agent Applications 43

Royal Malaysian Customs Department

4. Customs Agents Management 46

MINISTRY OF AGRICULTURE AND AGRO-BASED INDUSTRY

5. Management Of Certified Paddy Seeds Subsidy 49

MINISTRY OF NATURAL RESOURCES AND ENVIRONMENT

Department Of Environment 6. Management Of Privatisation Activity For Monitoring

Of Air Pollution And Enforcement Activity On Permanent And Movable Sources 52

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MINISTRY OF SCIENCE, TECHNOLOGY AND INNOVATION

7. Management Of Research And Development Programme 56

MINISTRY OF TRANSPORT

8. Operations Relocation Project Of The Malayan Railways Limited From Tanjong Pagar To Woodlands (Station) And Kempas Baru (Depot), Johor Bahru 59

MINISTRY OF COMMUNICATIONS AND MULTIMEDIA MALAYSIA

9. Integrated Security Management System Project (Phase 9) 62

Department Of Broadcasting

10. Construction Of The Integrated News Centre 65

MINISTRY OF EDUCATION MALAYSIA

11. 1BestariNet Service 67 12. ICT Equipment Maintenance Management 73 13. Construction Of Institute Aminuddin Baki (IAB)

Enstek Town, Nilai, Negeri Sembilan 75 14. Construction Project Of Malaysia Sports School And

Other Related Facilities 77

Department Of Polytechnic Education

15. Procurement And Renovation Of METrO Polytechnic Buildings And Procurement Of ICT Equipment 81

MINISTRY OF HEALTH MALAYSIA

16. Construction Project Of Shah Alam Hospital 83 17. Management of Asset Losses And Write-Offs 86

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18. Management Of Health Clinics Construction Project In Sarawak 88

MINISTRY OF WOMEN, FAMILY AND COMMUNITY DEVELOPMENT

19. 1AZAM Programme 92

MINISTRY OF DEFENCE

20. Management Of Retirement Benefits Payment To Malaysian Armed Force Pensioners 95

MINISTRY OF TOURISM AND CULTURE MALAYSIA

21. Management Of Events 98

MINISTRY OF HOME AFFAIRS

Royal Malaysia Police 22. Management Of Traffic Summons 101 23. Management Of Mobile Police Vehicles Under The

Patrol Car Branch And Motorcycles Under The Motorcycle Patrol Unit 103

PART II

MANAGEMENT OF GOVERNMENT COMPANIES

24. Financial Performance And Supervision Of Government Companies 106

25. Management Of KTMB (Car Park) Sdn. Bhd. 110 26. Management Of Felcra Niaga Sdn. Bhd. 113

POSTSCRIPT 117

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SECTION 1

2

3

SYNOPSIS

AUDITOR GENERAL’S REPORT FOR THE YEAR 2013

THE FEDERAL GOVERNMENT’S FINANCIAL STATEMENT AND FINANCIAL MANAGEMENT OF

THE FEDERAL MINISTRIES/DEPARTMENTS

NATIONAL AUDIT DEPARTMENT MALAYSIA

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5

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 Government‟s 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. Beginning 2013,

the Auditor General Report will be tabled at each sitting of

the Parliament or three times a year in line with the

Government Transformation Programme 2.0 in fighting

corruption under the National Key Result Areas. 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 Government‟s 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;

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1.3. Performance Audit - to evaluate whether the

Federal Government‟s activities/programmes/projects

have been carried out efficiently and economically to

achieve their desired objectives/goals; and

1.4. Government Companies’ Management Audit

- to evaluate whether the Federal Government

Companies have been managed in a proper and

effective manner as well as achieving their objectives.

2. My report on the Financial Statement and Financial

Management of the Federal Government‟s

Ministries/Departments for the Year 2013 consists of the

following:

Part I : Certification Of The Federal

Government’s Financial Statement

For The Year Ended 31 December

2013

Part II : Financial Management Of The

Federal Government

Part III : National Audit Department’s

Involvement In Special Evaluation

Towards Enhancing Accountability

Of Public Financial Management

Part IV : General Matters

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3. Audit on the Federal Government‟s Financial

Statement for the Year 2013 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

2013, 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 findings revealed that several Ministries

and Departments still did not follow financial regulations

fully. Among others, these weaknesses were due to

negligence in compliance with stated financial

rules/procedures, 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 Government‟s

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

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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 that responsible 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 250 Federal offices throughout the

country.

4.3. The National Audit Department continued to be

involved in the special evaluation of the performance of

Premier Grade Officers on financial management as

part of their confirmation exercise. A total of 40 Heads

of Department were evaluated from January 2013 to

July 2014. These evaluations have indirectly contributed

towards the 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 and Federal Treasury of

Malaysia confirmed that corrective actions on the

weaknesses raised had been taken by the officers.

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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.

Putrajaya

( TAN SRI DATO’ SETIA HAJI AMBRIN BIN BUANG )

Auditor General Of Malaysia Putrajaya 23 July 2014

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SYNOPSIS

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SYNOPSIS

PART I - CERTIFICATION OF THE FEDERAL

GOVERNMENT’S FINANCIAL STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2013

1. The Federal Government‟s Financial Statement for

the year ended 31 December 2013 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 2013, the Federal Government received

revenue totalling RM213.370 billion, with an increase of

RM5.457 billion (2.6%) as compared to RM207.913 billion

for the year 2012. In the same year, the Government had

approved allocation of operating expenditure amounting to

RM216.647 billion in which a total of RM211.270 billion or

97.5% was spent. As for the development expenditure, in

general, the Federal Ministries/Departments had spent

RM42.210 billion (94.9%) out of RM44.464 billion of the

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approved allocation. The Federal Government incurred

deficit of RM38.541 billion with its ratio to the Gross

Domestic Product (GDP) at 3.91%. The deficit was covered

by internal and external loans amounting to RM111.770

billion. Apart from financing the development expenditure,

the loans were also used to repay the existing debts and

finance the Housing Loan Trust Fund.

Financial Management Of The Federal Ministries And

Departments

3. The National Audit Department audited 24 Federal

Ministries and 45 Federal Departments in 2013 in order to

evaluate whether their financial management was in

accordance to related laws and financial regulations. Audit

findings revealed that the overall financial performance of

the Ministries had improved as compared to previous 4

years. In 2013, 23 Ministries were rated as excellent in

2013 as compared to 22 Ministries in 2012, 19 Ministries in

2011, 17 Ministries in 2010 and 10 Ministries in 2009.

When compared to 2009, the number of Ministries which

successfully achieved the excellent ranking had increased

to 130%. However, the financial performance for Federal

Departments was not encouraging. In 2013, only 21

(46.7%) out of 45 Departments were rated as excellent as

compared to 21 (53.9%) out of 39 Departments in 2012 and

21 (50%) out of 42 Departments in 2011. Meanwhile, 1

Ministry and 24 Departments were rated as good. Besides

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auditing the Headquarters of the Department of Information

(DOI) and the National Registration Department (NRD), 14

branches of DOI and 15 branches of NRD throughout the

country were also assessed. Audit was also carried out in

10 Malaysian Missions Overseas under the Ministry of

Foreign Affairs.

4. As required under Treasury Instructions, all

Controlling Officers/Heads of Department should 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 determine to what extent such duties

were carried out by the Controlling Officers/Heads of

Department, the National Audit Department carried out

surprise inspections in 250 Federal Departments/Offices at

state and district level. Audit findings revealed that there

were some instances of delays in banking-in collections,

amendment/cancellation of receipts was not made in

accordance with the prescribed laws and cash books were

not maintained properly and kept up to date. The relevant

reports were submitted to relevant Heads of Department at

Headquarters and State level for further actions.

5. Besides conducting mandatory audits as provided

under the law, the National Audit Department also carried

out special evaluation on the financial management

performance of Premier Grade Officers in various

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Ministries/Departments/Agencies. For the period January

2013 to July 2014, a total of 40 Heads of Department had

been evaluated.

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POSTSCRIPT

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POSTSCRIPT

In general, the financial management of the Federal

Ministries in 2013 showed a better performance as

compared to the previous 4 years. In 2013, 23 Ministries

were being rated as excellent compared to 22 Ministries in

2012, 19 Ministries in 2011, 17 ministries in 2010 and 10

Ministries in 2009. When compared to 2009, the number of

Ministries which achieved the excellent ranking had

increased to 120%. However, the financial management at

the Departments‟ level was not encouraging. In 2013, only

21 (46.7%) out of 45 Departments were rated as excellent

compared to 21 (53.9%) out of 39 Departments in 2012 and

21 (50%) out of 42 Departments in 2011. The financial

management 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 the National

Audit Department also occur in other areas as well

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as its Responsibility Centres 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 not only on internal controls but also

on risk management and organizational

governance, report on significant findings as well as

giving recommendations that give impact and

outcome to the organization;

c. Issues highlighted by Audit should be discussed

with greater detail in the Audit Committees. These

meetings should also discuss corrective and

preventive actions which could be taken to make

sure that the same issue does not recur. 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;

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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;

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 authorized officers, the Accountant

General Department needs to ensure that its

Inspectorate Unit carries out inspection on

Responsibility Centres as planned;

g. All Department‟s policies, instructions and

delegation of powers should be done in written form

so that they are more transparent and accountable.

The Department‟s 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 financial management

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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 should always be updated by the

Ministries/Departments in preparation for the

Federal Government to move towards accrual

accounting in 2015; and

j. Impose surcharge on those who failed to collect

revenue/made 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 their responsibilities.

National Audit Department Putrajaya

23 July 2014

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SECTION 2

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27

SYNOPSIS

AUDITOR GENERAL’S REPORT FOR THE YEAR 2013 SERIES 3

ACTIVITIES OF THE FEDERAL MINISTRIES/DEPARTMENTS

AND MANAGEMENT OF THE GOVERNMENT COMPANIES

NATIONAL AUDIT DEPARTMENT MALAYSIA

28

29

PREFACE

30

31

PREFACE

1. Articles 106 and 107 of the Federal Constitution and

the Audit Act 1957 require the Auditor General to audit the

Federal Government‟s Financial Statement, financial

management, activities as well as management of Federal

Government Companies and submit the reports to His

Majesty, Seri Paduka Baginda Yang di-Pertuan Agong and

obtain his assent before tabling them in Parliament. To fulfil

its responsibilities, the National Audit Department carried

out 4 types of audit as follows:

1.1. Attestation Audit – to give an opinion as to

whether the Federal Government‟s 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 the

Federal Government activities have been carried out

efficiently and economically to achieve its desired

objectives/goals; and

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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 2013 Series 3

consists of two parts as follows:

Part I : Implementation Of Activities Of The

Federal Ministries/Departments

Part II : Management Of Federal Government

Companies

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 procurement,

construction, infrastructure, computer system development,

maintenance, education, revenue management, security

and environment. This report contains observations from

the audit of 23 programmes/activities/projects of 15 Federal

Ministries/ Departments, management of 2 Government

Companies and management on financial performance as

well as supervision of Government Companies. Generally,

weaknesses observed are such as

work/procurement/service did not follow specifications/low

quality/was unsuitable; unreasonable delays; improper

payment; wastages; weaknesses in management and

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maintenance of Government‟s assets. The said

weaknesses were due to negligence when complying with

the Government‟s rules/procedures; not meticulous in

planning programmes/activities/projects and defining

scopes and tender specifications; works of

contractors/vendors/consultants were not monitored and

supervised closely; poor project management skills;

outcome/impact of programmes/activities/projects was not

given due attention and insufficient funds for asset

maintenance.

4. Just as in the previous year, relevant Heads of

Department were informed beforehand on issues

highlighted in this report for verification purposes. In order

for corrective actions to be taken and improvements to be

made by the relevant Chief Secretaries of Ministry/Heads of

Department/Chief Executive Officers of Government

Company, a total of 118 recommendations were made.

5. The Auditor General‟s Dashboard which has already

been implemented for more than a year has achieved its

objectives under the Government Transformation

Programme 2.0 in fighting corruption under the National

Key Results Areas (NKRA). It displayed the issues and

latest status of actions taken on the Auditor General‟s

Report. This mechanism has successfully helped the

Ministries/Departments/Companies to give fast and speedy

feedbacks. This showed the commitment and serious

attention of the Ministries/Departments/Companies

especially the Government in updating the latest status of

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issues highlighted in the Auditor General‟s Report as well

as being a dissemination channel to the public on the latest

actions taken.

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

the Ministries/Departments/Government Companies who

have given their cooperation to my officers 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 Malaysia Putrajaya 18 September 2014

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SYNOPSIS

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SYNOPSIS

PART I - IMPLEMENTATION OF ACTIVITIES BY THE FEDERAL MINISTRIES/DEPARTMENTS

MINISTRY OF FINANCE

Accountant General’s Department Of Malaysia 1. Management Of Unclaimed Moneys

a. The Accountant General of Malaysia (AG) was

appointed as the Registrar of Unclaimed Moneys under

the Unclaimed Moneys Act 1965. The Registrar‟s role

was undertaken by the Trust And Security Management

Division, Accountant General‟s Department of Malaysia

(TSMD, AGD). TSMD was responsible for ensuring

effective and systematic enforcement of the Unclaimed

Moneys Act 1965. Two Trust Accounts were set up to

take into account unclaimed moneys under the

Unclaimed Moneys Act 1965 which were distinguished

as Code 875518 (Imejan System) and Code 875540 (G-

UMIS). G-UMIS referred to the Government Unclaimed

Money Information System. Imejan System replaced the

Manual System where original copies of Unclaimed

Moneys Register (UMA-3) were scanned and kept in

TIFF format. This system contained unclaimed moneys

records up to 2004. However in 2006, TSMD switched

to G-UMIS which was a module under the Government

Financial Management Accounting System (GFMAS)

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that recorded unclaimed moneys beginning 2005. The

balance of unclaimed moneys as at 31 December 2013

was RM4.72 billion. Audit findings revealed that TSMD

had given attention to entities which prioritise

Awareness Programmes. Overall, the management of

unclaimed moneys by TSMD was not satisfactory.

Among the weaknesses identified were as follows:

i. enforcement of the Unclaimed Moneys Act 1965 –

Entities which were late in submitting unclaimed

moneys were not imposed compounds amounting

to RM1.218 billion. There was low submission level

of unclaimed moneys where only 1,911 entities

(0.1%) out of 2.3 million registered companies and

businesses up to year 2013 submitted the

unclaimed moneys;

ii. weaknesses of internal control system - Information

of unclaimed moneys in Unclaimed Moneys

Registration Form (UMA-3) received from entities

in softcopy form could be altered prior to being

uploaded into the G-UMIS system. There was a

risk of double payment since the verification of

payment voucher under the G-UMIS system could

be made even after the payment voucher was

previously verified under the Imejan System.

Whereas information on owners of unclaimed

moneys (UMA-3) in the G-UMIS system was not

filled or filled as „UNKNOWN‟ involving 980,255

transactions amounting to RM343.49 million; and

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iii. an officer who committed fraud and falsified

documents between 27 August 2008 and

21 December 2010 involving loss of unclaimed

moneys amounting to RM995,031 was not yet taken

legal action even though police reports were made

on 3 Mac 2011 and 10 Mac 2011.

b. It is recommended that the Accountant General Of

Malaysia (AGD) considers the following actions:

i. enhance the enforcement activities:

a. prosecute or impose fine for late submission of

unclaimed moneys as provided under

subsection 10(4) or subsection 16(1) of the

Unclaimed Moneys Act 1965;

b. selection criteria for inspection cases should

focus on risky companies/firms; and

c. prepare a checklist as Standard Operating

Procedures (SOP) that should be complied with

during inspection of unclaimed moneys;

ii. improve and strengthen the internal control:

a. UMA-3 in Microsoft Excel should be made in

protected format and have elements of

encryption to prevent data from being altered;

b. G-UMIS system which has been used since

2006 should only allow information of UMA-3

„Legacy‟ from the Imejan System to be keyed in

once; and

40

c. enhance monitoring and supervision on

compliance with the payment authorisation limit

so that payments are approved accordingly;

iii. issue reminders to entities which failed to complete

owners‟ information in UMA-3 Form;

iv. take disciplinary action against officer who

committed fraud even though the court has not

given the sentence; and

v. implement job rotation comprehensively and

continuously.

MINISTRY OF FINANCE

Inland Revenue Board Of Malaysia 2. Real Property Gains Tax

a. The Real Property Gains Tax (RPGT) is a tax imposed

on gains derived from the disposal of real estate which

includes flats, houses, condominiums, apartments,

farms and vacant lands. RPGT is levied on every ringgit

of the chargeable gain from the disposal of real estate

(asset which may be subjected to tax). Basically, each

category of disposal in a year of assessment is

assessed individually depending on the holding period

of the asset. The Real Property Gains Tax Act 1976

(RPGTA 1976) provided some exemptions on the

chargeable gains such as exemptions on private

residence, exemptions under Schedule 4 of RPGTA

1976 and exemptions made by the Minister. RPGT is

handled by the RPGT Unit in each branch of the Inland

41

Revenue Board of Malaysia (IRBM). Besides that, the

Corporate Tax Department (CTD) of IRBM at Jalan

Duta, Kuala Lumpur is also involved in the handling of

RPGT. Beginning 2013, RPGT collection for the

Petroleum Division (Downstream) is recorded under the

Petroleum Division while the collection before 2013 was

recorded under CTD. RPGT is the sixth highest

contributor from the 9 main tax components with total

collection of revenue amounting to RM537.60 million,

RM607.99 million and RM787.29 million for the year

2011 to 2013 respectively. Audit findings revealed that

all three RPGT Units selected achieved their annual

targets where each assessor successfully completed

1,200 RPGT assessments. Overall, the management of

RPGT was satisfactory. However, there were several

weaknesses which should be given due attention as

follows:

i. there were outstanding assessments (back log) of

11,470 and 12,974 cases in Petaling Jaya and

Johor Bahru Branch respectively because the

number of RPGT forms received exceeded the

annual targets set for each assessor;

ii. inaccurate classification of real property disposal;

iii. delay in the processing of RPGT forms between

91 days to 852 days;

iv. notices of assessment were not yet issued even

though the acquirers had remitted 2% of the total

value of consideration to IRBM;

42

v. there were RPGT arrears amounting to RM773,636

involving 19 individuals and 6 companies;

vi. the 10% tax increase under subsection 21(4),

RPGTA 1976 amounting to RM17,122 was not

imposed on disposers (individuals/companies); and

vii. civil suits under section 23, RPGTA 1976 were not

taken against 6 companies with tax arrears

amounting to RM590,263.

b. It is recommended that IRBM considers the following:

i. create a clearer guideline on the classification of

property disposals whether under RPGTA 1976 or

the Income Tax Act 1967;

ii. a more systematic distribution of files should be

made so that assessors could identify the frequency

of transactions made by disposers in the same year

of assessment;

iii. enhance the enforcement activities of RPGT

collection such as preventing tax evader from

leaving Malaysia and taking civil suit so that tax

arrears could be collected in full; and

iv. number of employees in the RPGT Unit should take

into account the number of real property disposal

forms received at the branch in order to avoid

backlog and increase revenue collection.

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MINISTRY OF FINANCE

Inland Revenue Board Of Malaysia 3. Management Of Tax Agent Applications

a. A tax agent is any professional accountant or any

person approved by the Minister of Finance in

accordance with subsection 153 (3) of the Income Tax

Act 1967 (ITA 1967) to perform a task as tax agent. Tax

agents provide tax services to clients such as preparing

income tax return form (BNCP) and representing clients

in cases of audit, investigation and appeal. Through the

Self-Assessment System (STS), tax agents are

responsible to assist clients in ensuring smooth

implementation of STS and its related matters in

accordance with stipulated rules. As such, the

management of tax agent applications has to be done

efficiently so that approved tax agents could perform

their duties effectively as defined by ITA 1967.

Subsection 153 (1) of ITA 1967 stipulates that no one

can hold himself as a tax agent, tax consultant, tax

adviser or any other similar term to act on behalf of any

person other than the legal tax agent. Subsection 153

(4) ITA 1967 states that new application and renewal of

tax agent shall be made to the Minister of Finance.

However, for purpose of implementation, the Minister of

Finance has delegated his power to the Secretary of

Tax Analysis Division, Ministry of Finance to approve

the tax agent applications. There are 3 types of tax

agent applications which are new application, renewal

and appeal. New application is the application from

those who have never applied or those who have been

44

approved as tax agents but fail to renew their tax

agents‟ validity period more than one year after its

expiry. Renewal application is the application of existing

tax agents who intend to renew their validity period as

tax agents. Tax agent renewal application should be

made within 4 months before the expiry of the approved

thirty six-month validity period. Whereas Appeal

application is the application made by those who have

failed once or twice in their applications. The first appeal

application should be submitted within 6 months from

the date of rejection letter while the second appeal

application must be made 6 months after the date of

rejection letter. The Tax Analysis Division (TAD),

Ministry of Finance has introduced the Tax

Management Information System (TMIS) in 2008 to

facilitate application and approval process of tax agents

and provide training to all parties who manage tax agent

applications. Audit findings revealed that the

management of tax agent applications was satisfactory

in terms of full utilisation of TMIS to facilitate application

and approval which was done online as compared to

manual before. However, overall, there were several

weaknesses that should be given due attention as

follows:

i. delay in approving new applications and renewals of

tax agents and inconsistency in managing

interviews;

ii. TMIS at the Ministry of Finance was not integrated

with the Tax Agent Registration System at the

Inland Revenue Board of Malaysia (IRBM);

45

iii. monitoring and enforcement on tax agents with

expired validity period (1088 people) and tax agent

information were not updated in IRBM website (190

people). Tax agents did not comply with the period

of time prescribed for renewal applications (104

cases); and

iv. additional assessments and penalties under

subsection 113 (2) of ITA 1967 amounting to RM49

million were imposed by IRBM to taxpayers who

used the services of tax agents (966 cases).

b. It is recommended that TAD and IRBM consider the

following:

i. TAD and IRBM should improve the process of

approving tax agent application in terms of time

taken for approval, approval conditions, interviews

and the certification by the Tax Agent Committee to

enhance the level of public delivery system and the

tax agent services to clients;

ii. TAD and IRBM should set up strategies to enhance

monitoring and enforcement against illegal tax

agents and other matters relating thereto;

iii. IRBM should update statistics and list of tax agents

in accordance with the prescribed period so that the

number and list of tax agents in such period are

accurate. Only updated list of tax agents is posted

on IRBM website. In addition, TMIS at the Ministry

of Finance and the Tax Agent Registration System

at IRBM need to be integrated so that the accurate

46

information could be obtained from the system

quickly; and

iv. TAD and IRBM should update rules and procedures

relating to tax agents for better management and

monitoring of tax agents. This includes IBRM

circulars on tax agents so that they are relevant with

current needs. Whereas the Guidelines For Tax

Agent Application issued by TAD must be dated for

enforcement purposes.

MINISTRY OF FINANCE

Royal Malaysian Customs Department 4. Customs Agents Management

a. The Royal Malaysian Customs Department (RMCD) is a

government agency established for the collection of

indirect taxes such as import duties, export duties, sales

tax, excise tax, service tax and levies imposed on

commercial and industrial transactions conducted in

Malaysia. Besides collecting taxes, RMCD also

provides facilitation and advisory services to traders and

merchants to facilitate transactions and provides added

value to the services provided. With facilitation and

advisory services provided, it will be able to promote

and contribute to economic growth. Section 90 of the

Customs Act 1967 allows a person to act as an agent to

conduct business on behalf of the importer/exporter.

RMCD has issued Customs Order (Perintah Tetap

Kastam) No. 45 (PTK No. 45) in 2003, as a guideline,

which outlines the structure and implementation of the

47

appointment and renewal of agents in all states and

customs stations. On 10 October 2007, the Cabinet

decided to freeze all customs agent license approval

under Section 90 of the Customs Act 1967, including all

new applications that had been received and were in

the approval process or had not been approved.

However, this decision did not include application for

renewal of an agent as well as application for

establishment of customs agent‟s branch.

Nevertheless, on 13 August 2008, the Cabinet agreed

that the approval of the forwarding agent license be

granted to those companies which had the status of

International Integrated Logistics Service Provider (IILS)

issued by the Malaysian Industrial Development

Authority (MIDA). As at 31 December 2013, the total

number of registered customs agent was 3,050

comprising of 1,906 forwarding agents and 1,144

shipping agents. An Audit which covered management

aspects of customs agents for the period 2011 to 2013

was conducted in Customs Division, RMCD

Headquarters and 5 RMCD states offices with the

highest number of customs agents, namely RMCD

Selangor, Johor, Sarawak, Sabah and Penang, which

had a total of 2,240 customs agents (73.4% of the total

customs agents). Audit which was conducted between

December 2013 and April 2014 revealed that RMCD

established a good organizational structure; had

adequate human resources; provided a Standard

Operating Procedure (SOP)/improvements that made a

48

positive impact; and leveraged the use of Information

and Communication Technology (ICT). However, there

were some shortcomings that should be given due

attention by RMCD as follows:

i. 4 out of 5 State Agent Control Units (ACU) visited

did not have immediate license renewal facilities

such as stated in the Direction Letter

KE.HE(44)001/01-3(A)Klt.4(31) dated 1 October

2009 which provided for immediate approval of

agent license renewal application and for ACU

which practiced immediate approval, no further

inspection was carried out after approval;

ii. the participation of Bumiputera for 21 forwarding

agents (8.51% of 246 agent files checked) was less

than 51% and 111 shipping agents (72.1% of 154

agent files checked) did not send officers to attend

Shipping Agents course;

iii. All ACU visited did not submit reports on agents‟

offences and violations of law once every 3 months

to the Agent Discipline Panel Secretariat; and

iv. no action was taken against 17 customs agents who

were not active (more than one year) or agents who

repeatedly committed offences/contraventions of the

Act/rules where there were three customs agents

who made mistakes repeatedly for 241, 307 and

468 times respectively in a period of 3 years (2011

to 2013).

49

b. It is recommended that RMCD considers the following:

i. ensure that every customs agent complies with

license conditions (Bumiputeras‟ participation and

attending relevant courses) before approving

renewal application;

ii. ensure that every ACU submits reports on agents‟

offences and violations of the law once every

3 months to the Agent Discipline Panel Secretariat;

and

iii. take action against all agents who are inactive or

repeatedly commit offences/contraventions of the

Act/rules.

MINISTRY OF AGRICULTURE AND AGRO-BASED INDUSTRY

5. Management Of Certified Paddy Seeds Subsidy

a. The Certified Paddy Seeds Subsidy (Incentive)

Programme for production and use of paddy seeds is

implemented since 2007 after being approved by the

Cabinet on 9 August 2006. The objectives of this

programme are to encourage rice farmers to use high

quality and certified paddy seeds to increase rice yield

while helping farmers to obtain cheaper and quality

seeds. The Certified Paddy Seed is a quality seed

certified by the Department of Agriculture (DOA) to be

productive and free from weedy rice/pests/diseases. The

subsidy amounting to RM0.50 per kilogram which was

50

given to the producers of certified paddy seed sold to the

farmers was increased beginning 2009 to RM1.03 per

kilogram for the certified inbred varieties (MR 185,

MR 219, MR 220, MR 232 and MR 220 CL) and RM15

per kilogram for the certified hybrid varieties. This

programme is expected to benefit a total of 172,230

farmers. The Federal Government approved a total

allocation of RM436 million for the period 2007 to 2013

(7 years). The subsidies paid to certified paddy seed

producers are based on their sales to farmers and the

prescribed quota set. For the period 2007 to 2013, the

number of companies involved annually in the

production and supply of certified paddy seeds ranged

from 4 to 13 companies. Audit findings revealed that in

general, the management of the Certified Paddy Seeds

Subsidy Programme was satisfactory where it assisted

farmers to obtain good quality paddy seeds at a lower

price. It was also found that seed farms were being well

managed and the monitoring activities by the Ministry of

Agriculture and Agro-Based Industry (MOA), DOA and

related agencies were satisfactory. In addition, this

programme was one of the contributing factors for the

increase in local rice yield. However, there were some

weaknesses as follows:

i. production of inbred varieties did not achieve the

targets set ranging from 3.19% (100% - 96.81%) to

96.74% (100% - 3.26%) for the period 2011 to 2013;

ii. actual expenditure percentage compared to

approved budget was not accurate. The certified

51

paddy seeds subsidy programme was not yet

extended to Sabah and Sarawak although an

allocation amounting to RM7.11 million was

provided;

iii. there was an improper payment on subsidy

(incentive) amounting to RM0.41 million due to non-

compliance of agreement; and

iv. the direct seeding method was still widely used

compared to the transplanting method which could

save on the usage of certified paddy seeds.

b. In order to ensure effective management of the certified

paddy seeds subsidy, it is recommended that MOA and

DOA consider the following:

i. MOA should review the production trends of the

appointed paddy seed producers based on their

individual capabilities. MOA should also ensure that

each producer meets his targeted quota consistently

in line with the contract as well as the requests/

needs of the farmers;

ii. MOA should plan the implementation of programme

based on the approved budget. In addition, MOA

should study on the need to step-up the production

of the hybrid variety by taking into account the cost

and amount of subsidy to be borne by the

Government as well as monitoring continuously on

the expansion of this programme to Sabah and

Sarawak;

52

iii. MOA should investigate on the cause of improper

payment, immediately claim back from the seeds

producer and take appropriate action against

Government officers found to be negligent in their

duties. MOA should review the incentive payment

process to avoid any recurrence as well as

strengthening internal controls on payment;

iv. MOA should study in detail the most efficient

method on rice cultivation in order to reduce the

usage of paddy seeds thereby reducing

Government spending. The element “Best Value for

Money” should be taken into account in this study;

and

v. MOA, DOA and related agencies should enhance

their cooperation in reviewing the effectiveness of

certified paddy seed subsidy programme along with

other incentives/subsidies related to paddy.

MINISTRY OF NATURAL RESOURCES AND ENVIRONMENT

Department Of Environment 6. Management Of Privatisation Activity For

Monitoring Of Air Pollution And Enforcement Activity On Permanent And Movable Sources

a. The role of the Department of Environment (DOE) is to

prevent, abate and control of pollution and

enhancement of the environment, in accordance with

the requirements of the Environmental Quality Act 1974

and the regulations provided thereunder. For these

53

purposes, DOE places emphasis on monitoring and

enforcement activities for the prevention/control of air

pollution; water pollution and scheduled waste

management. The air quality monitoring activity and

environmental data management were privatised and

operated by Environment Company Pte. Ltd. (ASMA)

since 1995 and the total payment made to ASMA up to

2013 amounted to RM329.10 million. Currently, ASMA

operates 52 automatic air quality monitoring stations

(Continuous Air Quality Monitoring-CAQM) which

comprise a network of 50 stations originally owned by

ASMA and 2 additional stations at Putrajaya and Miri as

well as 14 manual air quality monitoring stations

(Manual Air Quality Monitoring-MAQM). Whereas, the

enforcement activities are carried out by inspection of

Permanent Sources such as Prescribed Premises

(PYDT) and Non-Prescribed Premises (PYBDT) and

Mobile Sources such as motor vehicles. Audit carried

out between December 2013 and February 2014

revealed that in general, enforcement activities

particularly on PYDT and PYBDT were well carried out

where any non-compliance found at the premises was

reported through field citations and follow-up actions

were taken by DOE Enforcement Officer either in

issuing compound/Order Notice or preparing

investigation papers for the purpose of court action. The

management of compounds was done well where 95%

of the compounds issued had been collected. However,

there were still some weaknesses involving the

54

privatisation of air monitoring activity and enforcement

on motor vehicles that should be addressed as follows:

i. based on feedback of the Attorney General's Office,

there were terms in the Concessionaire Agreement

between the Government and ASMA which were

not in favour/did not protect the interests of the

Government involving aspects such as data

security; subcontracts; integrity/transparency;

relationship between parties and imposition of

penalties. The total payment made by the

Government to ASMA through the Concessionaire

Agreement as at 2013 amounted to RM329.10

million;

ii. only 25 (50%) of the 50 CAQM stations owned by

ASMA were Completely Built-Up (CBU) and directly

imported from Canada and the remainder (25) were

locally made stations (BT). However, DOE paid the

same rental rates for both types of stations which

amounted to RM0.73 million per month or

RM175.70 million for the concessionary period;

iii. a physical examination found that there were

differences in the quality/specification between the

imported CBU CAQM stations and the locally made

stations. The environment and condition of the

CAQM stations visited were unsatisfactory because

the surrounding was not clean, surface condition of

the station cabin and iron holder of the main tower

were rusty and the air monitoring equipment was in

55

faulty mode. As for the MAQM stations visited, the

surrounding was also not clean; and

v. the 49 Technometer equipment costing RM1.57

million were not used optimally as they were

considered as less user-friendly and having

software damage. This resulted in the old

equipment with same function still being used. The

equipment were also distributed late to the State

DOE.

b. To overcome the weaknesses highlighted in the report

and to ensure the same weaknesses do not recur, it is

recommended that DOE considers the following:

i. the contents/terms of the Concessionaire

Agreement in the future should be prepared more

carefully in order to protect the interests of the

Government;

ii. the type of station supplied and the depreciation

element should be taken into account during price

adjustment in future Concessionaire Agreement.

This should be given due consideration by DOE so

that the Government gets value for money;

iii. DOE should monitor and supervise the privatised

monitoring activities done by the contractor in future

so that the works done are of good quality; and

iv. planning and implementation of procurements

should be made in accordance with prescribed

56

Government regulations so that the Government

gets best value for money on provisions spent.

MINISTRY OF SCIENCE, TECHNOLOGY AND INNOVATION

7. Management Of Research And Development Programme

a. The Ministry of Science, Technology and Innovation

(MOSTI) established the Research And Development

(R&D) Programme to enhance human capital

development and intellectual properties through

research and development in science, technology and

innovation. This programme consisted of the Science

Fund and the Pre-Commercialisation Fund. The overall

approved allocation for this programme under the Tenth

Malaysia Plan (RMKe-10) was RM2 billion in which

RM800 million was allocated for the Science Fund and

RM1.2 billion was allocated for the Pre-

Commercialisation Fund. The Science Fund was a

grant provided by the Government since the Ninth

Malaysia Plan (RMKe-9) to carry out R&D projects in

fundamental research. However, starting from RMKe-

10, the focus of R&D was shifted from fundamental

research to applied sciences which could contribute to

discovery of new ideas and progressive knowledge in

applied sciences field as well as high impact and

innovative research. The Pre-Commercialisation Fund

was established to develop new processes, technology

57

or product or improve existing processes and

technology that have the potential to be

commercialised. The Pre-Commercialisation Fund was

categorised into 2 main components namely Techno

Fund and Inno Fund. Among the weaknesses identified

were as follows:

i. overall expenses performance for R&D Programme

for the period 2011 to 2013 was not satisfactory as

the actual expenses spent was RM199.63 million

(56.1%) compared to the approved allocation of

RM355.95 million. Among others, this was caused

by the provision allocated by MOSTI to the Project

Monitoring Agency not being wholly spent where

only RM53.09 million (30.3%) was spent as

compared to RM174.98 million allocated;

ii. overall physical performance of the projects was

satisfactory. There were 81 (62.3%) out of 130

projects which were completed as per schedule.

The progress of ongoing projects was also

satisfactory where 927 (91.1%) out of 1,018 projects

were according to schedule as at 31 December

2013. There were 5 projects which were terminated

where RM3.10 million had been paid by the

Government;

iii. as at 31 December 2013, the surplus from the

Science Fund allocation amounting to RM0.83

million which was not utilised in 3 out of 4 Research

Management Centres (RMC) visited was not

58

returned yet to the Government as stated in the

contract; and

iv. claims for the iDOLA Project Phase I amounting to

RM73,945 which was rejected by MOSTI was

charged to the Malaysian Foundation For Innovation

(YIM) as expenses under the iDOLA Project Phase

II. The stated expenses included salary, food,

travelling and accommodation.

b. Although corrective actions and improvements have

been carried out by MOSTI on several issues raised by

Audit, it is recommended that MOSTI considers further

actions as follows:

i. ensure that unutilised funds amounting to a

minimum of RM3.74 million which have been paid to

the respective parties are collected back as per

condition of the contract which covers matters

below:

overall Techno Fund amounting to RM2.91

million that has been paid to 2 terminated

projects (if there is no other alternative collection

as decided by MOSTI);

unused Science Fund allocation of one (1) RMC

for Science Fund project which have been

terminated; and

surplus allocation for Science Fund for 3 RMCs

selected as Audit samples amounting to RM0.83

million and other RMCs which have been issued

claims (if there was surplus allocation).

59

ii. ensure enforcement of contract clauses on all

involved parties such as the fund receiver, Project

Monitoring Team and Project Monitoring Agency so

that the Government‟s interest is safeguarded; and

iii. continuously monitor on the unused allocation of the

Science Fund (in the case of completed project)

which is not returned by RMC as stipulated in the

contract.

MINISTRY OF TRANSPORT

8. Operations Relocation Project Of The Malayan Railways Limited From Tanjong Pagar To Woodlands (Station) And Kempas Baru (Depot), Johor Bahru

a. The Operations Relocation Project of Malayan Railways

Limited (KTMB) from Tanjong Pagar to Woodlands

(Station) and Kempas Baru (Depot), Johor Bahru

involved the construction project of KTMB‟s

maintenance depot for rolling stock totaling RM41.77

million and renovation works at Woodlands Train

Checkpoint (WTCP), Singapore totaling SGD980,869.

The Agreement Between The Government Of Malaysia

And The Government Of Singapore To Implement The

Points Of Agreement On Malayan Railway Land In

Singapore Between Government Of Malaysia And

Government Of Singapore And The Joint Statement On

Singapore-Malaysia Leaders' Retreat Of 24 May 2010

which was signed on 27 June 2011 decided that

60

Malaysia should relocate train operations out from

Singapore by 1 July 2011. The construction project of

KTMB‟s maintenance depot for rolling stock was to

replace the existing facilities at Tanjong Pagar Railway

Station, Singapore and to provide maintenance facilities

for trains operating in the Southern Sector as well as

ensuring the safety aspect. The construction project of

KTMB‟s maintenance depot for rolling stock was

implemented using the design and build concept by

Hisniaga Sdn. Bhd. (HSB) which was appointed through

limited tender. The project was for a period of 18

months commencing from 17 January 2012 to 16 July

2013. The construction of KTMB‟s maintenance depot

for rolling stock was under the supervision of the

Ministry of Transport (Ministry). The Secretary General

of the Ministry was the Superintending Officer (SO)

while the president of KTMB was the SO‟s

representative. The scope of the construction project of

KTMB‟s maintenance depot for rolling stock in Kempas

Baru included earthworks, construction of buildings,

tracks and signalling systems. Audit carried out

between December 2013 and March 2014 revealed that

the construction project of KTMB‟s maintenance depot

for rolling stock was not satisfactory because the project

was not completed as at August 2014 and behind

schedule even after approval of an extension of time.

Among the weaknesses were as follows:

i. overall work was not planned properly and

thoroughly;

61

ii. works were carried out without the planning

permission from Johor Bahru City Council;

iii. three progress payments were made after the four-

month period from the issuance date of the Letter of

Acceptance and before the contract was signed;

iv. increase or reduction of works were carried out

without Variation Orders; and

v. the Certificate of Completion and Compliance

(CCC) for the Running Bungalow was not issued

even though it was occupied.

b. To overcome the weaknesses highlighted, it is

recommended that the Ministry and KTMB consider the

following actions:

i. ensure that project planning is carefully prepared by

taking into consideration the needs of users and

local authorities at an early stage so that

construction could be completed within the specified

period;

ii. ensure that the remaining works are completed as

soon as possible for the benefit of users;

iii. examine the change of rails used by taking into

consideration the cost, safety and lifespan of the rail

so that the Government gets the best value for

money;

v. ensure full compliance with the regulations on

contract administration. Appropriate actions should

62

be taken against officials found to be negligent in

the implementation and management of contracts;

v. ensure that Variation Orders are approved before

carrying out any increase or reduction of works; and

vi. enhance monitoring activities during the project

implementation to ensure that projects are

completed within the stipulated period and

contractors comply with the requirements of the

Local Authority.

MINISTRY OF COMMUNICATIONS AND MULTIMEDIA MALAYSIA

9. Integrated Security Management System Project (Phase 9)

a. The Ministry of Communication and Multimedia

Malaysia (MCMM) was formerly known as the Ministry

of Information, Communication and Culture (MICC).

MCMM developed the Integrated Security Management

System (ISMS) since 2000 with the aim of enhancing

the level of security control, reducing the rate of loss

and damage to property as well as improving the

efficiency in monitoring the attendance of officers and

also staff who work overtime. ISMS comprised of 5 sub-

systems namely Barrier Gate System, Access System,

Closed Circuit Television System, Video Recording

System and Time Management System. All these 5

sub-systems were integrated to allow centralised control

and monitoring. A total of 9 phases were carried out

involving a total of 155 sites. The overall cost of the

63

project amounted RM218.93 million which covered the

supply, installation, testing and commissioning,

maintenance and training. This project was financed by

the operating allocation of MCMM. Audit which was

carried out between November 2013 and February

2014 focussed on the implementation of Phase 9 ISMS

costing RM150 million. Audit findings revealed that the

overall management of the project was satisfactory in

terms of operating expenditure, approval of ICT project

procurement through direct negotiation, price

negotiation process, management of the Letter Of

Acceptance, management of advance payment to the

contractor and supply of 30,000 access cards worth

RM1.44 million. However, Audit findings also revealed

that Phase 1 to Phase 9 ISMS project worth RM218.93

million was not yet integrated and this may jeopardize

the achievement of set objectives. In addition, few

weaknesses were identified as follows:

i. until the lapse of the installation period of 18

months, only 79 sites (79%) were completed and

accepted by MCMM, 15 sites (15%) were given

extensions of time and 6 sites (6%) were cancelled

for implementation;

ii. 41 (52%) of the 79 completed sites did not optimise

the use of ISMS for the period between 7 to 17

months due to long time taken in processing the

access cards;

iii. impact study was still not conducted for Phase 1 to

Phase 8 ISMS projects worth RM68.93 million which

64

could be used as a guideline for improvement in

Phase 9 ISMS project;

iv. technical and ICT officers were not involved during

testing and commissioning sessions at 79

completed sites;

v. there was no participation from officers of the

Finance Division and Human Resources

Management Division during training sessions

organized by contractors. At the same time,

participant presence was only 42% for the first

training session; and

vi. maintenance scope of works was incomplete as well

as maintenance schedule and records were not

documented.

b. In order to ensure proper and effective ISMS

management, it is recommended that MCMM considers

the following actions:

i. enhance monitoring on project physical

achievement, utilisation level of ISMS and

maintenance works;

ii. ensure that impact study is carried out on Phase 1

to Phase 8 ISMS project in order to assess the

effectiveness of the system and identify the

weaknesses that could be improved during Phase 9;

iii. prepare a Guideline with details on usage for every

type of security pass, access limit and category of

65

user together with procedure to be followed in case

of loss and damage to the security pass; and

iv. Phase 1 to Phase 9 ISMS should be integrated

immediately to ensure that objectives set are

achieved. In addition, MCMM should ensure

continuous sufficient funds to ensure effective

implementation of the project.

MINISTRY OF COMMUNICATIONS AND MULTIMEDIA MALAYSIA

Department Of Broadcasting 10. Construction Of The Integrated News Centre

a. The Integrated News Centre (INC) was planned and

built by the Department of Broadcasting (RTM) for fast

news broadcasting. The construction of INC was to

ensure smooth operation of news broadcasting at

Television News Centre, Radio News and Current

Affairs Division especially in terms of information

dissemination and distribution between units. It was

also to ensure fast, accurate and reliable delivery of

broadcasting matters. The construction of INC was a

project under the Private Finance Initiative (PFI) with a

ceiling cost worth RM90.58 million. This project was a

Conventional Consultant project. The 7-storey building

project with a floor area of 32,483 square meters was

built on the land owned by the Ministry Of

Communications And Multimedia Malaysia (Ministry)

which covered 3.2 acres in the Angkasapuri Building

compound, Kuala Lumpur. This project was supposed

66

to be completed within 532 days (76 weeks) which was

from 28 January 2009 to 13 July 2010. However, INC

was handed over to RTM on 28 June 2012. The

performance of INC Construction Project was

satisfactory where 61 interim payments for INC project

were made within 30 days in accordance with the

contract. Whereas a total of RM1.82 million Liquidated

And Ascertained Damages (LAD) was collected from

the main contractor. However, there were several

weaknesses as follows:

i. the main contractor failed in the second stage of

assessment on technical capability;

ii. the quality of INC construction works was not

satisfactory where 53.6% users were not satisfied;

iii. contractor for INC maintenance work was not

appointed; and

iv. INC building was not fully utilised.

b. It is recommended that the Ministry, RTM, Public

Works Department (PWD) and the consultant team

consider the following actions:

i. PWD and the consultant team should ensure that

regulations issued by the local authority are

complied with during the implementation of the

construction project;

ii. the Ministry should establish an Inquiry Committee

to investigate on the negligence of the contractor

67

and the consultant team regarding the

unsatisfactory quality of INC construction;

iii. procurement of broadcast equipment/other

equipment should be expedited to ensure that INC

could operate optimally; and

iv. the Ministry should ensure that the INC building is

maintained regularly by the appointed party as a

preventive measure.

MINISTRY OF EDUCATION MALAYSIA

11. 1BestariNet Service

a. The 1BestariNet Service Project (1BestariNet) was an

initiative undertaken by the Ministry of Education

Malaysia (MOE) and carried out in partnership with YTL

Communications Sdn. Bhd. to replace and enhance ICT

connectivity in schools. It was an enhancement to the

SchoolNet service which was terminated on

31 December 2010 with emphasis on end to end

solutions (E2E) network services together with Virtual

Learning Environment (VLE). Under this project, 10,000

schools in Malaysia were equipped with high-speed 4G

Internet access and a virtual learning platform, providing

high-speed internet connectivity and access to a world-

class Integrated Learning Solution. 1BestariNet served

as a major catalyst for internet penetration in Malaysia

as well as the projected increase in national income. In

2010, the Economic Planning Unit (EPU) and the Prime

Minister's Office in collaboration with Boston Consulting

68

Group (BCG) carried out an impact study on the

SchoolNet Project and the role of ICT in education.

Based on the study, EPU recommended 22

improvements to ICT initiatives for MOE. The

recommendations for the replacement and

enhancement of the ICT Network System were the

result of the National Key Economic Areas (NKEA)

Laboratory - Communications Content and

Infrastructure (CCI) Entry Point Project 6 (EPP 6) led by

the Performance Management Delivery Unit

(PEMANDU) in December 2010. MOE was committed

to this project which was categorised as an extension

project over 15 years. This project was given priority as

it was under the Economic Transformation Plan (ETP),

which gave a big impact on the national economy. The

proposal for the implementation of the 1BestariNet was

presented by MOE at the Economic Council Meeting on

28 March 2011. The Economic Council decided that the

project should be implemented with immediate effect

through open tender by taking into account the VLE

component to accelerate a more effective integrated e-

learning approach. With the Economic Council‟s

approval, the estimated provision for the first 5 years

amounted to RM1.735 billion (RM347 million per

annum), the second 5-year period amounted to

RM1.475 billion (RM295 million per annum) and the

third 5-year period amounted to RM1.255 billion

(RM251 million per year) or an overall total of RM4.465

billion for the period of 15 years. To finance the

69

implementation of the project, MOE allocated RM310

million from the First Rolling Plan of the Tenth Malaysia

Plan (RMKe-10) in 2011, which was under item 08100 -

Educational Technology Division SchoolNet Project

(RM196 million), school Broadband (RM102 million) and

Local Area Network (RM12 million). To finance this

project for 2012 and subsequent years, MOE submitted

an application for provision under the Second Rolling

Plan RMKe-10 amounting to RM347 million per annum.

Through the open tender evaluation, the MOE

Procurement Board decided that the 1BestariNet project

should be implemented within 15 years with the price of

RM4.077 billion. The Malaysian Administrative

Modernisation and Management Planning Unit

(MAMPU) ICT Technical Committee Meeting

No.13/2011 dated 21 October 2011 had recommended

that the contract be made for 5 years and reviewed

every 2 to 3 years. The committee also recommended

that the 1BestariNet be integrated with EGNet and

separate network infrastructure from content

development. The Ministry of Finance (MOF) in its letter

dated 23 November 2011 finalised the 1BestariNet

tender worth RM663 million for a period of 2 years and

6 months. YTL Communications Sdn. Bhd. was

awarded the 1BestariNet Project to provide broadband

connectivity infrastructure and VLE to 10,000 schools

within a period of 2 years and 6 months starting from 13

December 2011 until 12 June 2014. Audit conducted

revealed that the 1BestariNet did not achieve its

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objectives of providing bandwidth connectivity

infrastructure and VLE to 10,000 schools within the 2

years and 6 months period starting from 13 December

2011 until 12 June 2014. Audit review on the

performance and management of 1BestariNet also

found some weaknesses as follows:

i. internet connection to 4,176 sites was delayed

between 12 to 439 days from the date of execution.

There was no extension of time and no late penalty

was imposed;

ii. no technical approval by MAMPU‟s ICT Technical

Committee and MOE did not implement value

management. MOE did not establish the Project

Steering Committee and the Project Technical

Committee. There was error on the number of users

sites for basic bandwidth in the contract documents;

iii. the school requirement studies were not

implemented before internet connectivity in schools

was done;

iv. a total of 89.1% from 46 schools tested and 70.3%

from 491 questionnaires found that the bandwidth

connectivity was unsatisfactory. A total of 58% from

501 schools informed that the 1BestariNet access

did not cover the entire school area. While the use

of the Network Technology Asymmetric Digital

Subscriber Line (ADSL) and the Outdoor Customer

Premises Equipment (OCPE) violated the terms of

the contract;

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v. the rental price of RM1,000 per year for each site of

1BestariNet Receiver Integrated System (1BRIS)

throughout the country was unreasonable;

vi. the hosting service was not fully utilised;

vii. antivirus software supplied was not utilised. Whilst

content filtering management services on internet

access and patch management were unsatisfactory;

viii. Mini Network Operation Centre (MNOC) did not

operate in real time;

ix. VLE usage by teachers, students and parents was

very low that was between 0.01% to 4.69%;

x. Project Management Office‟s operational expenses

amounting to RM157,940 exceeded the provision

limit; and

xi. payment for the Change Management Programme

for 6 participants from the contractor, 3 participants

from FrogAsia, accommodation and meals for family

members of the participants as well as claims

exceeded the Government servants eligibility which

violated the financial procedures.

b. To ensure that the weaknesses highlighted in the

1BestariNet Services project are improved and the

Government gets best value for money, it is

recommended that parties involved take the following

measures:

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i. MOE should ensure that the 1BestariNet Project

achieves its objectives that are to provide 10,000

schools throughout Malaysia with high speed

internet access and virtual learning environment

which applies high speed internet network as well

as access to a World Class Integrated Educational

Solution;

ii. MOE should issue a guideline for VLE in schools so

that VLE could be optimised by teachers, students

and parents. The approaches relating to teaching

and learning should be explained so that the

schools could implement VLE effectively. Besides

that, a pioneer project should be implemented to

ensure the effectiveness of the outcome from this

initiative;

iii. MOE should ensure that the contents of the contract

documents are properly checked and all errors such

as duration of contracts and the terms of payment

are corrected before signing to ensure that the

Government interest is protected, the services

provided are excellent and of best value for money;

iv. PMO should carry out physical check on all

networks and VLE usage other than through the

YES Monitoring System to ensure that the

1BestariNet service is satisfactory in all schools

throughout the country;

v. MOE should ensure that all payments are proper

and in accordance with the existing financial

procedures; and

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vi. MOE should charge rental according to the rental

rate that had been proposed by the Valuation and

Property Services Department (JPPH) and utility to

the contractor for 1BestariNet Receiver Integrated

System (1BRIS) that is built in the school

compounds.

MINISTRY OF EDUCATION MALAYSIA

12. ICT Equipment Maintenance Management

a. Beginning 2009, the maintenance of ICT equipment in

educational institutions of The Ministry of Education

(Ministry) under the category of Teaching and Learning

was entrusted to the Educational Technology Division

(ETD). It covered maintenance of ICT equipment at the

State Educational Technology Division (SETD), Office

of Educational Technology Division (OETD), Teachers'

Activity Centre and schools. Until 2013, ETD was

responsible for 128,149 units of functioning ICT

equipment including personal computers, laptops,

projectors and printers in over 10,132 schools

nationwide. The provision for ICT equipment

maintenance for 4 states namely Perlis, Penang, Perak

and Malacca was allocated by ETD to SETD under the

Direct Negotiation Contract through RHL Engineering

Sdn. Bhd. from 2010 to 2015. This contract was

managed by the Division of Procurement and Asset

Management involving schools only. As for the other 12

states, ETD would allocate budget to SETD, OETD, the

District Education Office (DEO) and schools which were

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considered as Responsibility Centres. Procurement

was done through quotation/direct purchase from

various contractors apart from RHL Engineering

Company Sdn. Bhd. Audit conducted from June 2013 to

February 2014 revealed that generally the financial

performance of ICT equipment maintenance under RHL

Engineering Sdn. Bhd. was good because expenditure

until end of December 2013 achieved 100%. However,

there were some weaknesses as follows:

i. complaints management was unsatisfactory

because the Supporting Ticket System (STS) could

not generate report on the number of complaints,

time taken for maintenance carried out as well as

resolved complaints and there was erroneous input

by users;

ii. the process in managing ICT equipment complaints

was not in accordance with the process specified in

the contract resulting in unenforceability of penalty

clause for delay in response time; and

iii. estimated penalty amounting to RM866,200 was not

imposed for failure to comply with the contract which

included the supply of temporary replacement

equipment, equipment taken out of the school

premises for more than 30 days and equipment

repaired exceeded 30 days.

b. To overcome the shortcomings raised and further

enhance the quality of ICT equipment maintenance

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management, the Ministry should give consideration to

the following actions:

i. take immediate action on the weaknesses that exist

in STS to ensure that the objectives of its

development are achieved;

ii. ensure that the conditions of future contract are

based on the actual needs of the ICT equipment

maintenance. In addition, enforce the terms of

contract so that the implementation meets the

requirements of the Ministry as well as protects the

interests of the Government; and

iii. set a clear policy on ICT equipment maintenance

requirements in future project so that the

Government gets value for money for expenses

incurred.

MINISTRY OF EDUCATION MALAYSIA

13. Construction Of Institute Aminuddin Baki (IAB) Enstek Town, Nilai, Negeri Sembilan

a. The Government under the Ninth Malaysia Plan (RMKe-

9) established the Nilai Education Complex consisting

of 6 projects namely Institute Aminuddin Baki (IAB),

Institute of Teacher Education Malaysia, Nilai

Polytechnic, Tunku Kurshiah College, English

Language Teaching Centre and Infra Works. IAB

Enstek Town was built on an area of 77.5 acres where

earthworks and building started in 2008 and completed

in 2012. This project was originally allocated a sum of

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RM158 million to train 40,000 participants per year with

a capacity of 1,000 participants at one time consisting of

the professional and managerial officers, both local and

foreign. However, the original allocation was reduced to

RM118 million which resulted in reduced intake capacity

to 500 participants at one time or 20,000 participants a

year. Audit conducted from November 2013 to March

2014 revealed that IAB Enstek Town was completed on

10 September 2012 and was used in stages starting

from March 2013 and fully utilised from January 2014.

However, Audit findings revealed several weaknesses

in the project management as follows:

i. the project was completed with 5 extensions of time

for 815 days compared to the original contract

period of 743 days;

ii. delay in completing the project exceeding 2 years

causing the targeted outcome of training 53,000

professional officers from local and foreign country

during the said period was not achieved. Only 269

participants or 0.51% were successfully trained;

iii. poor planning caused approval of post by the Public

Service Department to be received 12 months after

the completion of the IAB Building, Enstek Town. It

also caused assets to be received between 8 to 15

months after the building was completed; and

iv. poor quality construction works and unsuitable

design which could endanger and cause discomfort

to the participants.

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b. To ensure that the weaknesses highlighted do not

recur, it is recommended that the Ministry considers the

following actions:

i. enhance monitoring on the coordination between

the parties involved so that the project could be

completed within the prescribed period and its

outcomes could be achieved;

ii. ensure that staffing and procurement of office

furniture/facilities are planned properly so that the

building could be used once completed to avoid

wastage; and

iii. ensure that the Contractor takes remedial action on

all defects which have been identified. Complaint

records should be maintained so that repairs could

be recorded and monitored more effectively.

MINISTRY OF EDUCATION MALAYSIA

14. Construction Project Of Malaysia Sports School And Other Related Facilities

a. The Malaysia Sports School (MSS) was established to

provide more athletes in the school level to participate

in national and international level through training and

systematic coaching system. In addition, it aimed to

increase the level of knowledge, experience and skills

of athletes in sports without compromising academic

achievement as well as being a centre for dissemination

of knowledge and skills to meet the conditions of

admission to institutions of higher learning. In line with

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efforts to improve the quality of sports in the country

and the policy emphasizing on high performance sports,

the Ministry of Education (Ministry) under the Seventh

Malaysia Plan (RMKe-7) successfully completed the

construction of 2 MSS namely Bukit Jalil Sports School

on 1 January 1996 and Tunku Mahkota Ismail Sports

School, Johor on 18 January 1998 to serve as an Elite

Sports Development Centre. The construction of MSS

continued under the Ninth Malaysia Plan (RMKe-9) and

the Tenth Malaysia Plan (RMKe-10) with four additional

MSS where two MSS namely Malaysia Sports School

Pahang (MSS Pahang) and Malaysia Sports School

Sabah (MSS Sabah) were completed. Whereas the

other two were under construction and expected to be

completed in mid-2014. The sports facilities provided at

MSS were more complete which included a multi-

purpose hall, sports complex, track (synthetic), soccer

field, hockey field (Astroturf), open courts, swimming

pool, squash and takraw court. The Ministry focussed

on the preparation of quality facilities and sports

equipment as well as meeting international standards

for smoother sports development programmes. The

construction of the new MSS Pahang and MSS Sabah

buildings and other related facilities was implemented

conventionally beginning 2008. The contractors were

appointed through direct negotiations and each project

was monitored by the consultants consisting of Architect

Consultants, Mechanical & Electrical (M & E)

Engineers, Civil & Structural (C & S) Engineers and

Quantity Surveyors (QS). However, there were some

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weaknesses which should be given due attention as

follows:

i. MSS Pahang was completed with 5 Extensions Of

Time (EOT) (602 days) and 4 EOT (612 days) for

MSS Sabah. EOT for MSS Sabah was caused by

the delay of the Ministry in giving feedback and

variation order;

ii. tank works for the Female Hostel Block and the

installation of ceiling fans in Academy Block A5 and

A6 in MSS Pahang were not in accordance with the

contract drawings;

iii. unsatisfactory/imperfect works such as the sliding

door could not be locked and was unstable. There

were water seepage, leaks and cracks on the walls

of the building;

iv. damages or defects during the Defect Liability

Period were not yet rectified among others there

was no replacement for the landscape such as dead

flowers and plants and damaged kitchen appliances

were not repaired; and

v. facilities such as retention pond, jogging track and

outdoor gym could not be used due to mudslide.

b. It is recommended that the Ministry/Consultants take

the following actions:

i. ensure that works performed by the contractors

comply with the requirements of the scope of

work/contract drawings. Urgently implement/rectify

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works which were paid but not performed and not in

accordance with the contract drawings or deduct the

cost from the final payment to the contractors during

the preparation of the Final Accounts;

ii. ensure that the MSS construction projects are

designed with reasonable and appropriate

specifications in accordance with international

standard of sports facilities. This is to ensure that

athletes are exposed to appropriate training to

compete in international sports competition;

iii. all unsatisfactory construction works and defects

should be rectified immediately by the contractors

before issuing the Certificate of Making Good

Defects to prevent the Government from incurring

losses and bearing the related costs. The

Ministry/consultants should continuously enhance

supervision/monitoring on works performed by

contractors to avoid significant damages/defects

resulting from poor quality and improper/

inappropriate works which were not in accordance

with specifications. In addition, the Ministry should

also enhance monitoring on the certification of

works done by the appointed consultants. Whereas

for project where the Defects Liability Period has

ended, the Ministry should take proactive measures

by providing adequate funds and appointing

contractor for maintenance works; and

iv. urgently investigate and repair the damages of the

retention pond, jogging track and outdoor gym at

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MSS Pahang since this problem has persisted for

nearly two years resulting in wastage of public

money.

MINISTRY OF EDUCATION MALAYSIA

Department Of Polytechnic Education 15. Procurement And Renovation Of METrO

Polytechnic Buildings And Procurement Of ICT Equipment

a. The establishment of the METrO Polytechnic was an

effort to expand the supply of quality polytechnic

education programme in line with the National Higher

Education Strategic Plan and the Polytechnic

Transformation Roadmap. It could meet the high

demand by students and address the shortage of skilled

manpower in the country. The METrO Polytechnic, with

a capacity of 1,000 students was equipped with high-

tech Information and Communication Technology (ICT)

equipment/facilities and latest equipment to ensure

smooth implementation of the highly skilled teaching

and learning process. Programmes were offered

through full-time and part-time (Open approaches,

Virtual and Distant Learning-OVDL). Under the Ninth

Malaysia Plan (RMKe-9), a total of RM100 million was

allocated for the acquisition and renovation of METrO

Polytechnic buildings. The estimated cost required to

set up each METrO Polytechnic with approximately an

area of 4,000 square meters amounted to RM20 million

involving procurement of existing buildings, renovation

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and purchase of equipment and fittings. Audit carried

out from November 2013 to February 2014 revealed

that generally the project performance was satisfactory

because it was successfully completed on 10 December

2012 for Johor Bahru METrO Polytechnic, 25 May 2011

for Kuala Lumpur METrO Polytechnic and 28 February

2011 for Kuantan METrO Polytechnic. The Johor Bahru

METrO Polytechnic operated since 4 February 2013,

Kuala Lumpur METrO Polytechnic since 20 June 2011

and Kuantan METrO Polytechnics since 1 April 2011.

However, there were several weaknesses in this project

implementation as follows:

i. procurement of ICT (computer) for Johor Bahru

METrO Polytechnic was not yet done even though

the building was completed on 10 December 2012;

ii. students intake was only 27.6% of the original plan

due to shortage of lecturers;

iii. late approval of 3 Extensions of Time (EOT) for

Kuala Lumpur METrO Polytechnic and Johor Bahru

METrO Polytechnic between 74 to 114 days after

the expiry of the contract period; and

iv. 4 works done were not in accordance with stipulated

specifications, 25 works were of poor

quality/incomplete and 11 works were

inappropriate/impractical.

b. It is recommended that the Ministry of Education

considers the following actions:

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i. procure ICT equipment urgently for the Johor Bahru

METrO Polytechnic;

ii. together with the Consultant, ensure that immediate

actions are taken to rectify works which are of poor

quality, inappropriate and not in accordance with

specifications;

iii. urgently fill up the 110 new posts that have been

approved by the Public Service Department (JPA)

on 1 July 2014; and

iv. ensure that weaknesses highlighted in this report

are taken into consideration in the planning and

implementation of future projects.

MINISTRY OF HEALTH MALAYSIA

16. Construction Project Of Shah Alam Hospital

a. The Ministry of Health Malaysia (MOH) signed an

agreement on 2 July 2008 with Sunshine Fleet Sdn.

Bhd. (SFSB) for the construction of the Shah Alam

Hospital (SAH), with a capacity of 300 beds (In-Patient)

and the capability to increase to 500 beds. This project

involved the construction of the 14-storey main building

and other facilities for staff such as quarters (230 units

of classes D, E, F and G), hostel for nurses and

housemen (82 units), engineering block, mechanical

and electrical plant room as well as Tenaga Nasional

Berhad (TNB) substation. SFSB was appointed through

direct negotiation beginning 15 November 2007 until

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14 November 2010 with project cost worth RM491.60

million. However, SFSB failed to carry out this project.

On 3 September 2010, the Public Works Department

(PWD) issued a Notice of Determination on Contractor

Employment to SFSB. On 7 September 2011, The

Ministry of Finance (MOF) approved the appointment of

Gadang Engineering (M) Sdn. Bhd. (GESB) as the new

contractor to complete this project with contract cost

worth RM410.87 million with contract period of

24 months starting from 19 October 2011 to 18 October

2013. MOF also appointed PWD as the implementing

agency for the project, where the Director of Health

Works Branch was appointed as the Superintending

Officer (SO). Audit conducted from December 2013 to

May 2014 revealed that management on the

construction project was satisfactory especially with

regard to compliance of the contract, supervision and

monitoring of the new contractor by PWD. On top of

that, the work progress of the new contractor was

ahead of schedule and the quality of construction works

was satisfactory. However, the performance of the

previous contractor was not satisfactory as the progress

was behind schedule and had to be terminated. Audit

findings revealed the following:

i. the work progress for SFSB as at September 2010

was only 27%. Whereas the work progress for

GESB as at 15 December 2013 was 73.95% which

was 2 days ahead compared to the schedule of

73.92%;

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ii. all medical equipment totalling RM20.71 million

which were received were not yet tested and

commissioned as the SAH building was not fully

completed; and

iii. the project cost of SAH increased by RM68.25

million (14.1%) after taking into account the new

contract price worth RM410.87 million and payment

of RM139.98 million to SFSB before its termination

(including advance payment amounting to RM9.58

million). In relation to this, the Government suffered

a loss of RM68.53 million and claimed the loss from

SFSB.

b. It is recommended that the Ministry and PWD consider

the following actions:

i. selection of contractors should focus on their ability

in terms of financial position, expertise and

experience in construction;

ii. ensure that testing and commissioning is carried out

for all medical equipment so that they function

properly and are adequately covered with warranty

period; and

iii. pursue loss claims against SFSB for its failure to

carry out this project and blacklist it in Government's

procurement of construction projects.

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MINISTRY OF HEALTH MALAYSIA

17. Management Of Asset Losses And Write-Offs

a. Loss is defined as loss of public funds, stamps, public

goods and other valuable items due to theft, fraud or

officials‟ negligence, deficiency, overpayment,

unauthorized payment, unrecoverable debt and

unnecessary expenses. The purpose of public assets‟

write-offs is to control the losses incurred by the

Government due to loss of assets, eliminate/coordinate

missing asset records; raise awareness and

responsibility of the importance of safe keeping of

Government assets; and to allow disciplinary action or

surcharge to be imposed on negligent officials. Based

on the Preliminary Reports on Loss of Asset (KEW.PA-

28), a total of 7,712 assets valued at RM44.19 million

were reported lost from 2011 to 2013 in the Ministry of

Health Malaysia (MOH). Audit conducted revealed that

MOH had action plans to address the issue of asset

loss by forming taskforce to investigate recurring cases

of asset loss, establish the Risk Management

Committee and issued standard operating procedures

(SOP). However, in general, the management of asset

losses and write-offs in MOH was not satisfactory as

follows:

i. delays in resolving cases of loss and write-offs

ranging from 2 to 833 days at the hospital level and

in MOH;

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ii. there were thefts of medicine stock worth RM1.21

million in Hospital Kuala Lumpur (HKL) and RM0.24

million in Hospital Pulau Pinang (HPP);

iii. there were recurring loss cases of four types of

assets namely Air Conditioning Compressors;

Syringe Pump; Physiologic Monitoring System; and

Pulse Oxymeters invoving 97 units worth RM0.61

million;

iv. 970 assets amounting to RM7.95 million were

reported as Asset Not Found (V4L);

v. security controls at the hospital was not satisfactory

where 52 (26.06%) out of 253 CCTVs were not

functioning; and

vi. weaknesses in asset control in the disposal store

leading to loss of assets amounting to RM0.24

million.

b. To ensure that all the weaknesses raised are properly

addressed in order to achieve the set objectives, MOH

is recommended to take the following actions:

i. attractive and valuable assets should always be

kept under maximum control of the hospital and

asset movement records should be maintained

properly;

ii. develop an effective monitoring system to ensure

that loss cases are resolved within the stipulated

time and in line with current circulars;

88

iii. make police reports for prolonged Asset Not Found

cases;

iv. proactive measures such as assets matching and

verification should be carried out to determine their

existence so that it does not affect the accuracy of

accrual accounting in 2015;

v. urgently fill up the auxiliary police personnel

vacancies;

vi. review the delegation of authority limits in disposal

of assets in Hospital and MOH to expedite the

process of asset disposal; and

vii. take disciplinary action against negligent officers

who cause loss of public property.

MINISTRY OF HEALTH MALAYSIA

18. Management Of Health Clinics Construction Project In Sarawak

a. The Construction Project of Health Clinics (CPHC)

seeks to provide a more comprehensive primary health

care to the people besides reducing the workload of the

hospital. Among the main components of CPHC are

Registration Counter and Waiting Area; Medical/

Examination Room and Consultation Room; X-Ray

Room; Laboratory; Pharmacy; Dental Clinic; Rest

Room; Utility and Services Room; Bathroom and

Toilets, Prayer Room, Recreation/Landscape Areas,

Parking; Pick-up Point and Recovery Room; and

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Quarters. From 2008 to 2013, the Ministry of Health

Malaysia (MOH) implemented 17 CPHC with the

original contract sum of RM233.86 million in Sarawak.

The implementing and monitoring CPHC were carried

out by the Engineering Services Division (ESD) of

MOH; Public Works Department of Malaysia (PWDM);

Sarawak State Public Works Department Sarawak

(SSPWD); Sarawak State Health Department (SSHD)

and consultants. In Sarawak, CPHC was implemented

from time to time and categorised according to Health

Clinic type 2, 3, 4, 5 and 6 depending on the projected

attendance of day patients. Procurement of 17 CPHC

from 2008 to 2013 in the state of Sarawak was done in

accordance with the existing Government procurement

procedures which were open tender (16 projects) and

restricted tender (1 project). The procurement

management was undertaken by the Procurement and

Privatization Division of MOH, PWDM and SSPWD.

After getting the approval from the Economic Planning

Unit (EPU), Prime Minister's Department, MOH

distributed the allocation warrants to the implementing

agencies which were ESD, MOH (1 project), PWDM (1

project), PWDM/SSPWD (3 projects) and SSPWD (12

projects). Audit carried out between November 2013

and February 2014 found out that management of

CPHC in Sarawak was satisfactorily carried out where

12 projects (85.7%) out of 14 audited projects were

completed; the total cost of the projects did not exceed

the budget approved and 11 projects had been in

operation and providing services to the local

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community. However, there were still some

shortcomings in terms of management of CPHC as

follows:

i. the Occupation Permits (OP) were not obtained as

at 31 May 2014 for 8 Health Clinics (HC) namely

Batu Kawa HC, Kuching; Braang Bayur HC,

Kuching; Asajaya HC, Samarahan; Munggu Lalang

HC, Samarahan; Mid-Layar Nanga Spak HC,

Betong; Bario HC, Miri; Long Lama HC, Miri; and

Jepak HC, Bintulu which were occupied and had

operated for 256 to 922 days;

ii. as at 31 May 2014, the final accounts of Bario HC,

Miri; Belaga HC, Kapit; and Batu Kawa HC, Kuching

which had been completed between 14 to 30

months were not prepared;

iii. quality of construction works was not satisfactory at

Bintulu HC; Batu Kawa HC, Kuching; Mid-Layar

Nanga Spak HC, Betong; Bario HC, Miri; Braang

Bayur HC, Kuching; Long Lama HC, Miri; and

Munggu Lalang HC, Samarahan;

iv. unsuitable equipments such as air compressors,

sink taps, sinks and laboratory tables at Bintulu HC;

Batu Kawa HC, Kuching, Asajaya HC, Samarahan;

and Jepak HC Bintulu;

v. unsuitable design of sanitary pipes at Jepak HC,

Bintulu; Asajaya HC, Samarahan; Mid Layar Nanga

Spak HC, Betong; and Munggu Lalang HC,

Samarahan;

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vi. insufficient clean water supply to meet the daily

consumption in Long Lama HC, Miri; Munggu

Lalang HC, Samarahan; and Braang Bayur HC,

Kuching; and

vii. ineffective monitoring of CPHC by PWDM, SSPWD,

SSHD and consultants.

b. In order to overcome the shortcomings raised and to

ensure that the same weaknesses do not recur in future

CPHC, it is recommended that MOH, PWDM, SSPWD

and SSHD consider the following actions:

i. MOH and SSPWD should establish clear

procedures on the need to have OP and ensure that

all HC buildings obtain OP before been occupied

and used;

ii. PWDM and SSPWD should prepare and certify the

final accounts of the project within the specified time

so that the actual cost of project could be identified

and do not burden the contractor;

iii. MOH should prepare an action plan to solve the

problem of clean water supply and provide

generator facilities in HC so that services provided

to the local community are not affected; and

iv. MOH and SSPWD need to create a more effective

monitoring mechanism by taking serious action in

accordance with the law against contractors and

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consultants to avoid delay and enhance the quality

of the project.

MINISTRY OF WOMEN, FAMILY AND COMMUNITY DEVELOPMENT

19. 1AZAM Programme

a. Overall, the 1AZAM programme was satisfactorily

implemented by the Ministry of Women, Family and

Community Development (MWFCD), Ministry of

Agriculture and Agro-Based Industry (MOA), Ministry of

Agriculture and Food Industry State of Sabah (MAFI)

and Ministry of Welfare, Women and Family

Development (MWWFD) for the State of Sarawak. For

the period 2011 to 2013, MWFCD, MAFI and MWWFD

successfully met the programme‟s participation target

which was more than 100% while MOA achieved

97.45%. Besides creating job opportunities, out of 265

participants interviewed, 132 (49.82%) were able to

increase their household income to more than RM300.

However, there were still some weaknesses as follows:

i. selection of participants was not made through

eKasih and this was inconsistent with the decision

made by the National Action Council (NAC) 3/2010

and also the resolution of the National Key

Performance Indicators (NKPI) in 2011 and 2012.

This caused non-participation from the targeted

groups (poor/hardcore poor);

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ii. at MOWFCD‟s level, the justification for the

selection of 22 suppliers of goods amounting to

RM8.0 million to the participants could not be

ascertained;

iii. 64 (24.15%) out of 265 interviewed participants did

not fully utilize the supplied equipment. This

happened because the participants had their own

businesses and did not solely focus on the

programme. They were no longer interested in the

programme and were not skilful in the use of

equipment provided. Moreover, they were aging

participants and could not handle the aid received;

iv. a total of 72 (21.37%) out of 337 selected

participants was unavailable for interview during

Audit visits. Up to August 2014, the Implementing

Agency failed to identify a total of 33 (9.79%)

participants. This was because the monitoring

mechanism established was not fully implemented

and there was shortage of staff in the Ministry and

the Implementing Agency; and

v. 3 out of 5 selected sample group projects under

MOA namely Chilli Fertigation Plantation in Ketereh,

Kelantan, Floating Chalet Project in Merbok, Kedah

and Swiftlet Project in Kedah did not generate

revenue but already affected 278 participants. This

was because the Floating Chalet in Merbok, Kedah

was still under construction and the Swiflet Project

had no output yet. The Chilli Fertigation Plantation

in Kelantan did not generate returns since its

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operation. Whereas 2 projects namely Mussels

Farming Project in Pasir Gudang, Johor and Natural

Rubber Plantation in Sik, Kedah generated revenue

to participants.

b. In order to ensure that the objectives of 1AZAM

programme are achieved as stipulated, it is

recommended that the parties involved consider the

following:

i. a detailed study should be done before the aid is

granted. Among the things that need to be given

due attention include ensuring that each participant

is competitive, experienced and has a place for his

future activities;

ii. implementing agencies should prepare individual

participants file so that information and documents

could be filed to facilitate monitoring;

iii. for programmes with group concept, compliance

with the guidelines provided by MOA should be

observed. MOA should also efficiently monitor the

implementation so that participants could get results

in the stipulated time frame to help increase their

income; and

iv. the supply of aid to participants should be

accelerated so that they can take advantage of the

aid immediately.

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MINISTRY OF DEFENCE

20. Management Of Retirement Benefits Payment To Malaysian Armed Force Pensioners

a. The Veterans Affair Department (JHEV) was

established under the Ministry of Defence (Ministry) in

accordance with the Cabinet decision made on

11 October 2000 and commenced its operation on

1 January 2001. The responsibilities of JHEV included

managing payment of retirement benefits, help

improving the socio-economic status as well as looking

after the welfare of the military pensioners after

completing their services. The military pensioners

(Veterans) were Malaysians who had served full-time in

any of the military forces/division such as the Malaysian

Armed Forces (ATM); ATM Reserve Team which was

ordered to serve full-time without considering their

length of service; Force 136, British Army who served in

Malaysia/Singapore and Sarawak Rangers. Regulation

22(2) of the Regular Forces (Pension, Gratuities and

Other Benefits) Regulations 1982 and the Armed

Forces Act 1972 stated that pension eligibility and

service benefit were given to officers who were in

service for a recognised period of not less than 10 years

and Regulation 24(2) stated that it was given to

personnel from other ranks who were in service for not

less than 21 years. Veterans who did not complete the

period of service as stated above were eligible to

receive all the retirement benefits except pension.

There were 17 retirement benefits for veterans such as

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Service Pension; Disability Pension; Derivative Pension;

Cash Award in lieu of leave; Gratuity; Fixed Allowance

for Mobilization Officer, Education Allowance as well as

the Welfare and Education Aid Scheme. The

establishment of the Armed Forces Veterans

Foundation was approved by the Cabinet on 23 July

2003 and was registered under the Companies Act

1965 as a company limited by guarantee. A

Government grant of RM10 million was approved for

this Foundation. The Foundation had distributed Festive

Contribution of RM500 each person for 5 categories of

recipients which were widows of Veteran, orphans of

Veteran, disabled Veterans, Veterans at welfare homes

and Veterans aged 70 years and above. Audit

conducted between July and December 2013 revealed

that JHEV had played its role as the agency in

managing the payment of retirement benefits to the

Veterans. However, the management of retirement

payment benefits was not satisfactory due to poor

upkeep of records such as data of each

veteran/recipient was not updated. Failure to monitor

and update the status of veterans/recipients of

retirement benefits in terms of accuracy and validity of

the data resulted in the following:

i. there was an increase of RM0.99 million (44.6%) in

Electronic Fund Transfer cancellation cases which

was RM3.21 million in 2013 compared to RM2.22

million in 2012;

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ii. a total of 2,058 unclaimed pension payment cases

amounting to RM7.78 million was credited to the

Lapsed Deposit Cancellation Scheme B Lapse

Account as at October 2013;

iii. based on the confirmation from the National

Registration Department (NRD), 44 (5.7%) out of

768 samples of the active veterans/recipient had

actually died; and

iv. a total of RM11.94 million monthly pension was

overpaid during the period of 2011 to 2013 to 3,786

dead veterans/recipients. An amount of RM1.69

million (14.2%) from the total stated was already

collected back from the banks.

b. To overcome the weaknesses raised and to ensure that

the management of the retirement benefits is

implemented properly and efficiently, it is recommended

that JHEV considers the following:

i. officer in charge should ensure that the information

entered into the VIBES System is accurate and

complete, including the identity card number before

verification is being made. Strict action should be

taken against officer who makes errors

(mistake/carelessness/negligence) resulting in

overpaid pension, incomplete data which disrupt the

smooth process of pension payments, improper

payment and delay in detecting the status of

veterans/recipients of retirement benefits;

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ii. do data cleaning of all information on

veterans/recipients to ensure data accuracy and

validity;

iii. carry out detailed investigation or analysis on

information obtained from NRD in order to stop

payment to dead recipients;

iv. take continuous and comprehensive action on

recipients who are categorised under the Lapsed

Deposit Cancellation Scheme B Lapse Account and

EFT Adjustment Cancellation Deposit Account;

vi. establish transformation programme by reviewing

the organisational structure and staffing of JHEV to

achieve its objectives, mission and vision; and

vii. cooperate with the Department of Social Welfare to

improve socio-economic and welfare of the

veterans.

MINISTRY OF TOURISM AND CULTURE MALAYSIA

21. Management Of Events

a. The objectives of the Ministry of Tourism and Culture

Malaysia (Ministry) among others were to improve the

contribution of the tourism sector to the national

economy as well as to promote art, culture and heritage

through art and culture events/activities towards

upholding the 1Malaysia Concept. The strategies used

to increase and promote domestic and international

tourism were through industrial development events;

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promotion on tourism and the Ministry‟s mega events

organized by the Tourism Sector as well as the Cultural

Sector. For the management of events, the Ministry

spent a total of RM78.96 million (93.5%) from the

approved allocation of RM84.47 million in 2011,

RM69.24 million (78.4%) from the approved allocation

of RM88.34 million in 2012 and RM89.94 million

(94.9%) from the approved allocation of RM94.78

million in 2013. Audit conducted from November 2013

to February 2014 revealed that generally the

management of the Ministry‟s events had successfully

achieved the Key Performance Indicators set and

attracted tourists especially domestic tourists. On top of

that, the Blue Ocean Strategy which was used, in

particular, by the Pahang Office of the Ministry in

managing events had successfully attracted more

tourists to the state based on tourist arrival statistics.

However, there were still weaknesses in the planning

and implementation of events that should be given due

attention by the Ministry as follows:

i. procurement was not done accordingly and

justification for the appointment of contractor could

not be determined. For example, there were

redundancy in the scope of works for public relation

service between the contractor appointed by the

Ministry with monthly fee amounting to RM363,363

(22 months) and the contractor appointed by

Tourism Malaysia with monthly fee amounting to

RM39,900 (12 months);

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ii. the composition of event segments of the Fabulous

Food 1Malaysia: Street And Restaurant Food

Festival Event was not well balanced and not in line

with the 1Malaysia Concept as well as could affect

religious/multicultural ethnic sensitivity in Malaysia

(Halal food serving);

iii. management of events especially in choosing

location; storage of event promotional items;

management of payments; safety management as

well as maintenance after the events were not done

accordingly; and

iv. events were not closely monitored especially on the

verification of services/supplies by the contractors.

b. In order to overcome the weaknesses highlighted in this

report and ensure that the same weaknesses do not

recur, it is recommended that the Ministry considers the

following:

i. ensure that the management of procurement;

appointment of contractors and event segments are

well planned and done according to procedures in

force; cost-effective and in line with the event

objectives;

ii. ensure that future event management especially on

location decision, storage of event promotional

items, management of payments, event safety

management as well as maintenance after the event

are done accordingly and in line with the

guideline/planning set;

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iii. ensure that the payments made are in line with the

rules set to ensure accountability in the usage of

public money and stern action should be taken

against officer involved in improper payment; and

iv. supervise closely on the events in whole.

MINISTRY OF HOME AFFAIRS

Royal Malaysia Police 22. Management Of Traffic Summons

a. The Traffic Branch of the Royal Malaysia Police is

under the jurisdiction of the Internal Security/Public

Order Division comprising of 5 other branches namely

General Operations Force, Special Operations Force,

Marine Operations Force, Federal Reserve Force and

Air Unit. The objectives of the Traffic Branch are to raise

the level of compliance with traffic rules and regulations

by road users; increase the level of efficiency,

transparency and justice in the investigation of cases

involving traffic offences and to ensure that the quality

of services provided to the public are continuously being

improved. Section 53 (1) of the Road Transport Act

1987 (Act 333) states that the traffic police can issue

notices/summons for traffic offences committed under

this Act. In addition, Section 53 (2) of the Road

Transport Act 1987 states that an offence may be

compounded to a person being summoned and the

person compounded shall settle the compound within

the specified time. If the compound is not settled within

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the specified time, the court will issue a warrant of

arrest on the individual. Meanwhile, Section 120 of the

Road Transport Act 1987 and Section 49 of the

Commercial Vehicles Licensing Board Act 1987 (Act

334) state that traffic police is authorized in writing by

the Minister of Home Affairs to compound traffic

offences. Audit carried out between November 2013

and February 2014 revealed that the Traffic Branch had

achieved the objectives stipulated in managing traffic

summons. However, the efficiency of the Traffic Branch

in managing traffic summons should be enhanced by

paying attention to the following:

i. a total of 9,639,992 (58.9%) summons and 970,914

(61.2%) warrants of arrest were still outstanding;

ii. management of summons was not in accordance

with rules and regulations such as late registration

of summons and incomplete preparation of

documents of arrest;

iii. 19 (8.2%) complaints were settled late between 5 to

67 days which exceeded the stipulated period of 15

days; and

iv. procedure for monitoring summons was not fixed

and only conducted based on the needs and

requirements of each Traffic Branch.

b. In order to ensure that the management of summons is

more organized and efficient, it is recommended that

the Royal Malaysia Police carries out the following:

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i. take more effective and continuous action on the

settlement of summons and warrant of arrest in

order to reduce outstanding summons and enforce

warrants of arrests issued to citizens and non-

citizens;

ii. fully enforce existing rules and regulations to

achieve efficiency in the management of summons.

In addition, review existing rules and regulations for

improvements in the management of summons;

iii. improve the management of complaints so that

each complaint could be managed within the

specified time period; and

iv. study on appropriate monitoring methods for the

management of summons by focusing on the

aspects of settlement of summons and warrants of

arrest.

MINISTRY OF HOME AFFAIRS

23. Management Of Mobile Police Vehicles Under The Patrol Car Branch And Motorcycles Under The Motorcycle Patrol Unit

a. The management of Mobile Police Vehicles (MPV)

under the Patrol Car Branch and Motorcycles under the

Motorcycle Patrol Unit (URB) are placed under the

Department of Crime Prevention and Eradication

(JPPJ). MPV serves as a front liner that acts as a police

first responder in handling and dealing with all incidents

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reported to the police through the Control Center.

Whereas URB is responsible to improve safety in public

places, especially in residential areas and indirectly will

create a sense of security among the members of

society. Audit findings revealed that the overall

management of MPV under the Patrol Car Branch and

Motorcycles under URB was satisfactory. Individual files

for vehicles were well maintained; vehicles were kept in

a suitable place; agreements and performance bonds

for the acquisition of motorcycles under URB were

signed and submitted within the specified period; and

continuous monitoring through meetings and role calls

were always conducted. In addition, the use of

motorcycles under URB contributed to the decrease in

crime rate. However, there were several areas that

should be given due attention in order to improve the

efficiency of the management of MPV and motorcycles

under URB as follows:

i. out of 22,726 vehicles owned by the Police Force, a

total of 15,626 (68.8%) of the vehicles exceeded the

economic useful life of 8 years and for MPV, 1,530

(42.1%) out of 3,635 vehicles also exceeded the

economic useful life of 8 years at the end of 2013;

ii. the period of MPV suspension (vehicles that could

not be used for doing assignments due to

maintenance and repair) in 5 district police

headquarters visited was between one to 4 weeks

involving 72 MPV, 5 to 24 weeks involving 81 MPVs

and more than 45 weeks involving 4 MPV;

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iii. among the reasons for MPV suspension was the

shortage of mechanic in the Royal Malaysia Police

workshops whereby the shortage in 5 district police

headquarters visited ranged from 49.1% to 77.8%

from the prescribed work norms that was a shortage

of between 26 to 78 mechanics; and

iv. there were URB staff who failed to send their

motorcycles to be serviced at the workshops of the

respective state/district police headquarters after the

expiry of free service provided by the supplier.

b. It is recommended that the relevant parties take the

following actions:

i. the Ministry of Home Affairs and the Royal Malaysia

Police should continue to apply allocation to the

Ministry of Finance to get new vehicles in order to

ensure that MPV staff could carry out

assignments/operations smoothly and could reduce

maintenance costs. As an alternative, the Ministry of

Home Affairs and the Royal Malaysia Police could

consider the option of renting vehicles for police

force;

ii. the Royal Malaysia Police should apply for

additional posts or redeploy staff by paying attention

to workloads comparing to the number of mechanics

who could perform full-time duties in order to ensure

that services given by the workshops could be

implemented quickly, efficiently and effectively; and

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iii. the Royal Malaysia Police should ensure that URB

staff send motorcycles to be serviced by the

suppliers or the workshops of the respective

state/district police headquarters according to the

schedule stipulated.

PART II - MANAGEMENT OF GOVERNMENT COMPANIES

24. Financial Performance And Supervision Of Government Companies

a. Section 5(1)(d) of the Audit Act 1957 empowers the

Auditor General to examine, investigate and audit a

company registered under the Companies Act 1965,

which received grant/loan from the Federal Government.

In addition, 50% of the paid up capital of that company is

held by the Federal or State Government or Government

Agency and an order has been issued by His Majesty,

Seri Paduka Baginda Yang di-Pertuan Agong.

Consistent with this requirement, the Audit (Accounts

and Companies) Order was gazetted on 30 October

2013 to enable the National Audit Department to

conduct audit on the said companies. The Ministry of

Finance has classified all these companies into 5 main

sectors namely Strategic, Commercial, Social,

Miscellaneous and Special Purpose Vehicle (SPV).

Audit analysis on the audited financial statements for 62

companies found that generally, the financial

performance was satisfactory. However, Audit findings

revealed the following:

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i. the Federal Government invested a total of

RM33.202 billion in 63 companies (in which the

Federal Government held more than 50% of the

paid up capital);

ii. the return from this investment in the form of

dividend and tax amounted to RM27.781 billion and

RM41.684 billion respectively for the financial year

2012;

iii. the total revenue increased for 3 consecutive years

and profit before tax for 2010, 2011 and 2012 were

RM75.702 billion, RM100.202 billion and

RM103.279 billion respectively;

iv. for the financial year 2012, the average gross profit

margin was 34.2%. The gross profit margin of 14

(22.6%) from 62 companies were 15% and below.

Meanwhile 4 out of 15 companies under the

Commercial Sector recorded a gross profit 15% and

below although the overall Commercial Sector

recorded gross profit margin from 37.3% to 60.9%.

The companies under the Social Sector recorded a

low gross profit margin for the year 2012 which was

2.8%, although there were some companies which

recorded gross profit margin between 6.2% to 7.5%;

and

v. 36 (58.1%) out of 62 companies showed an

increase in shareholders‟ funds for the period 2010

to 2012, while the shareholders fund for

11 companies (17.7%) showed a continuous

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decline. The shareholders‟ funds for companies

under the Commercial Sector showed an increase

although there were some which recorded negative

shareholders‟ funds. The shareholders‟ funds for

companies under the Social Sector showed a

declining trend, although they recorded positive

funds. Six (6) companies (9.7%) suffered from

inadequate shareholders‟ funds and showed decline

for 3 consecutive years which was RM5.141 billion

in 2010 to RM5.002 billion in 2011 and to RM4.895

billion in 2012. The said companies were Malaysia

Debt Ventures Bhd., Pyramid Pertama Sdn. Bhd.,

Perwaja Terengganu Sdn. Bhd., Keretapi Tanah

Melayu Berhad, 1Malaysia Sukuk Global Bhd. and

Assets Global Network Sdn. Bhd..

b. In order to ensure that the Government Investment

Corporation Division (GIC) as the Government‟s main

investment body achieves its objectives and operates

more efficiently, it is recommended that GIC considers

the following actions:

i. closely monitor the financial position of each

Government company so that any increase or

decrease in the company's financial figures could

give early indication to the Government so that

Government decisions on investment and its

operational activities as well as its objectives could

be evaluated from time to time;

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ii. GIC should ensure that appointed Government

representatives in the Board of Directors take into

account the shareholders‟ perspective when making

decisions. The Board members have a fiduciary

responsibility to act in the best interest of the

company and the Government as a shareholder. As

an example, discussing the instruction letter from

the Minister of Finance Incorporated relating to

supervision requirements in the Procurement

Manual in the Board Meeting;

iii. ensure that all companies adopt best practices as

outlined in the Red Book based on relevance of

companies‟ objectives and operation to enhance

transparency and integrity in the procurement

process. Based on surveys, only 11 (28.2%) of the

39 companies used the Red Book as the basis for

preparation of the Procurement Manual; and

iv. the Board members should play their role and

responsibility to review and approve policies,

processes, Key Performance Indicators (KPI) and

business targets and to authorize the Chief

Executive Officer for procurement improvement

initiatives.

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MINISTRY OF TRANSPORT MALAYSIA

25. Management Of KTMB (Car Park) Sdn. Bhd.

a. KTMB (Car Park) Sdn. Bhd. (KTMBCP) is incorporated

in 1994 under the Companies Act 1965 with a paid up

capital of RM100,000. It is a wholly owned subsidiary of

the Keretapi Tanah Melayu Berhad (KTMB). The main

objective of the company is to manage car parks at

selected railway stations in Peninsular Malaysia.

KTMBCP‟s main activities are to provide car park

facilities which are competitive, safe and user friendly.

As a subsidiary company, KTMBCP pays administrative

charges of RM4,000 per month to KTMB. Besides that,

KTMBCP rents land from KTMB and the Railway Asset

Corporation (RAC) for the purpose of operating car park

business with a fixed monthly rental or 15% of car park

gross income. Until 31 December 2013, KTMBCP

managed 18 car parks which consisted of 2,748 car lots

and 802 motorcycle lots. KTMBCP has 3 members in the

Board of Directors, which consists of a non-executive

chairman, a representative from the Ministry of Transport

and a representative from KTMB. Audit carried out

between January and April 2014 revealed that

KTMBCP‟s financial performance was not satisfactory.

Although KTMBCP recorded a net profit after tax of

RM130,337 in 2010, the company recorded net losses

after tax in 2011 and 2012 amounting to RM121,939 and

RM120,856 respectively. The losses were due to

decrease in revenue after the closure of 7 car parks in

Johor Bahru, Klang, Butterworth, Bukit Mertajam,

Serdang, Kg. Batu and Batu Kentomen and the closure

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of a subsidiary company which was KTMB Parking Pte.

Ltd., Tanjung Pagar on 30 June 2011. The overall

activities performance was satisfactory. However, there

were several weaknesses that should be given attention

as follows:

i. the level of achievement of the Key Performance

Indicators (KPI) was low which was between 41.7%

to 58.3% for the period 2011 to 2013;

ii. business plans ware not achieved because the

company suffered losses in 2011 and 2012;

iii. rental agreements were not prepared for 14 car

parks which were still operating;

iv. weaknesses in internal controls where the Standard

Operation Procedure (SOP) was not prepared for 17

car parks which were operating;

v. weakness in monitoring staff working hours because

the punch card machine was not used;

vi. parking fees could not be collected because of poor

operational controls such as vehicles could exit after

operating hours, the barrier gate was not functioning

and the cashier could come in and go out without

control;

vii. safety features of car parks was incomplete such

as the barrier gate was not functioning and teller

booth was not available;

viii. cleaning and maintenance services of the

landscape were not fully performed by the

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contractor where the grass was not cut and rubbish

was not removed; and

ix. there was no confirmation of works done for

cleaning and landscape maintenance services by

the personnel on duty.

b. To ensure that KTMBCP achieves its objective and

enhance its organizational corporate governance, it is

recommended that the management considers and

takes actions as follows:

i. formulate a comprehensive long-term business plan

to overcome the low level of KPI achievements,

decline in revenue collection as well as revising

existing SOP so that the methodology and internal

control system of the collection could be improved;

ii. revise existing maintenance and cleaning contracts

to ensure that the procurement process is in

accordance with the regulations and the principle of

best value for money as well as to improve the

monitoring of maintenance works performed by the

contractor;

iii. ensure that there are legal agreements for all the

operational car parks to protect the interests of the

company; and

iv. reevaluate the facilities and equipment at all car

parks area in order to improve the safety and

confidence of users.

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MINISTRY OF RURAL AND REGIONAL DEVELOPMENT

26. Management Of Felcra Niaga Sdn. Bhd.

a. Felcra Niaga Sdn.Bhd. (FNSB) is a wholly owned

subsidiary of FELCRA Berhad (FELCRA). FNSB was

established on 21 October 1998 and commenced

operations in the same year with an authorized capital

of RM5 million and paid up capital of RM2 million. FNSB

is a company which has the experience and expertise in

fertilizers management, farming contract and also in

supplying and trading of various agrochemical products.

Two main activities of FNSB are Agritrade and

Agricontract. The FNSB Board comprises of 5 members

who are Independent Non-Executive Directors including

the Chairman. The FNSB management is led by a

Managing Director and assisted by 83 executives and

non-executives. As a subsidiary of a Government

Owned Company, FNSB needs to comply with the

Companies Act 1965 and other rules and regulations

issued by the Ministry of Finance (MOF). Audit carried

out from September to December 2013 revealed that

the financial performance for the financial years 2010 to

2012 was good as the company recorded profit for three

consecutive years. Overall, its activity performance was

also good, where the company met the customers'

requirement based on the number of contracts received

from the main customer which was FELCRA Berhad.

However, there were some weaknesses in the activity

management, financial management and corporate

governance as follows:

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i. FNSB KPI targets were not discussed and approved

in the Board Meeting. It was only prepared for the

purpose of reporting the achievement of FNSB‟s

activities to the Ministry of Rural and Regional

Development (KKLW). The KPI achievement was

also not reported either at FNSB or FELCRA level

before being submitted to KKLW;

ii. 110 payment vouchers for the supply of local and

bulk blend fertilizers with a total of RM15.65 million

involving 6 suppliers were not supported with

delivery orders attached as a proof of delivery and

receipt of the fertilizers;

iii. shipment and supply of fertilizer did not tally with the

local order where there were shortage between 11

metric tonnes to 242.1 metric tonnes and an excess

by 64.1 metric tonnes of compound fertilizer and no

evidence of any orders being issued on the

reduction or addition;

iv. bulk blend fertilizer production was only focused on

the requirements of FELCRA. FNSB had not yet

produced bulk blend fertilizers to the external

market because of capital and labour constraints.

The usage of bulk blend machine was also limited

because the production was only for FELCRA‟s

need;

v. procurement of chemical pesticides/chemical

fertilizers did not comply with the prescribed

procedure such as opening quotations; quotations

negotiation for an agreed rate as in the price list

from suppliers; the Procurement Committee meeting

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to select the successful suppliers was not

conducted in 2011 and 2012 and the letter of

acceptance was not issued to the successful

supplier; and

vi. weaknesses in financial record keeping such as

payment vouchers were kept separately from the

supporting documents.

Apart from that, there were weaknesses in financial

management and corporate governance such as the

Standard Operating Procedure Draft for the main

activity was not updated and approved by the Board

since its preparation in 2010, the payment vouchers

were not signed by the responsible officer and

compensation/bonus to members of the Board of

Directors was not appropriate.

b. It is recommended that the parties involved take the

following actions:

i. the Board of Directors should ensure that the target

and achievement of each KPI are monitored and

approved by the Board to ensure that the indicators

are objective and could evaluate the actual

performance of the company and assist the Board in

improving the management of the company and

formulate business strategies that are more relevant

and comprehensive;

ii. the management should prepare policies and

detailed procedures of the activities and financial

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management to enhance internal controls and

ensure that all regulations are enforced effectively

and consistently with approval from the Board;

iii. the management should ensure that all financial

transactions are supported with complete

documentation and kept in an orderly manner to

facilitate monitoring and reference thereby

enhancing accountability and transparency of

management activities;

iv. the Board and the management should ensure that

all financial and activities procedures prescribed are

complied with in order to ensure all documents used

in business activities are valid to avoid fraud;

v. the management should ensure that any change in

supply of fertilizers is based on written instructions

from the authorized party so that the changes made

are valid based on the actual needs of the

customer;

vi. the management should review and take the

initiative to expand the production of bulk blend

fertilizer to the external market and not solely

dependent on FELCRA contracts; and

vii. the management should establish guidelines on

asset controls approved by the Board to ensure the

existence of a mechanism which safeguards and

controls the assets so that they are in good and safe

condition.

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POSTSCRIPT

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119

POSTSCRIPT

In general, Ministries/Departments/Government Companies

had good plans to implement their programmes/activities/

projects. However, in terms of implementation, there were

several weaknesses that should be overcome immediately to

ensure that each programme/activity/project is implemented in

an efficient, economical and effective manner to achieve the

stated objectives. In this regard, the following

recommendations were made to overcome the weaknesses

from recurring:

a. as audits conducted by the National Audit Department are

based on samples and certain scopes, Secretary Generals

of Ministry/Heads of Department/Chief Executives should

carry out thorough examination to ascertain whether other

programmes/activities/projects have the same weaknesses

and thereby take corrective actions and make

improvements. In relation to this, other than carrying out

evaluation on internal controls, the Internal Audit Unit is

required to carry out procurement and performance audits

on the management of programmes/activities/projects to

determine whether programmes/activities/projects are

implemented efficiently, economically and the stated

objectives are achieved;

b. based on Audit conducted, there were several weaknesses

in the implementation of programmes/activities/projects

due to lack of monitoring/supervision by responsible

120

parties, insufficient technical expertise and relying

completely on consultants/contractors, no coordination

among agencies involved as well as internal problems

faced by contractors. These weaknesses caused the

programmes/activities/projects not to be completed within

the stipulated time, unsatisfactory works quality, increase

in cost of programmes/activities/projects and the

Government not getting best value for money for the

expenditure incurred. The objectives of the

programmes/activities/ projects were also not fully

achieved and did not give much impact on targeted

groups. In this regard, it is recommended that:

i. a detailed study on the Government projects needs to

be carried out before they are approved for

implementation. For this purpose, in line with the

Treasury Instruction 182.1, agencies need to submit

complete information such as status of project site,

project summary, project ceiling, annual allocation and

project schedule to the technical department. This is to

ensure that all projects are implemented according to

schedule and the Government gets best value for

money;

ii. integrated planning among agencies involved needs to

be carried out at the early stage of project

implementation especially for big projects. For

example, Department of Sewerage Services,

Department of Environment, Department of Irrigation

and Drainage, local authorities, utility providers such as

water, electricity and telecommunications as well as

Land Office need to be consulted before projects are

121

implemented so that all basic facilities could be

provided and projects could be implemented smoothly;

iii. the Ministries/Departments need to comply with the

Guidelines for Planning and Building Regulations

issued by the Standards and Cost Sub-Committee for

the reference of the National Development Planning

Committee when planning for works procurement to

ensure that buildings are built according to standard

and cost set;

iv. Controlling Officers/Heads of Department should

enhance Government asset management to avoid

wastage and take serious view on maintenance,

monitoring and supervision tasks. Records on asset

and inventory should always be updated in preparation

for the Federal Government to move towards accrual

accounting in 2015;

v. stern actions such as disciplinary action or surcharge

should be taken against officers who are found to be

negligent or fail to discharge their duties without

reasonable justification thereby causing losses to the

Government;

vi. Government companies should ensure good financial

performance; implement their activities properly and

economically to achieve the set objectives; and their

financial management and corporate governance are in

line with the rules and regulations stated; and

vii. as a sign of high commitment, the Controlling Officers

of various Ministries/Departments/Agencies/

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Government Companies should take actions on

matters raised by the Auditor General and report to the

Continuation Auditor Sector so that actions taken could

be updated in the Dashboard System of the National

Audit Department.

c. In addition to fulfilling the legal requirements, I hope this

report will form a basis for improving the weaknesses,

strengthening efforts and enhancing accountability and

integrity. This report is also important in the Government‟s

effort to increase productivity, creativity and innovation in

the public service as well as creating a work culture which

is fast, accurate and has integrity. Indirectly, this will also

contribute to the achievement of the Government

Transformation Programme 2.0 in fighting corruption

under the National Key Results Areas (NKRA).

National Audit Department Putrajaya 18 September 2014