Auditor-General (AG) Tan Sri Ambrin Buang continued to reveal a host of weaknesses in the government’s financial management in 2009 in his latest report that was tabled in Parliament in late October. However, there were a few bright spots that offered hope for a change in the way public resources are utilised.
The good news included the federal government’s surplus for the year, amounting to RM6.32 billion. This was the first time it had entered positive territory since 2005. In contrast, the government recorded a deficit of RM1.54 billion in 2008.
Another high point in the report was the financial discipline demonstrated by the Penang government, which saw revenue of RM1.1 billion in its accumulated fund, an increase of RM75 million from 2008. Penang, which is led by Pakatan Rakyat, and Sabah, led by Barisan Nasional, were the only state governments that were rated “good” by the AG. They have set the benchmark for the other state administrations (see facing page).
The government’s investments grew significantly in value during the year in review. The book value of its investments rose 30.7% to RM21.81 billion in 2009, from RM16.69 billion in 2008, mainly due to an increase in government securities and domestic and foreign deposits.
Audits were conducted on 25 federal ministries and 44 federal departments. The results showed that some of the ministries and departments were not serious in improving their financial management even though weaknesses had been repeatedly reported and brought to their attention by the National Audit Department.
The top five ministries in terms of financial management, as ranked by the AG, were the Ministry of Housing and Local Government, Ministry of International Trade and Industry, Ministry of Plantation Industries and Commodities, Ministry of Natural Resources and Environment and Ministry of Women, Family and Community Development. These ministries scored over 90 out of a possible 100 marks.
Accountability index makes a difference
A marked improvement was also seen in the financial administration of government agencies. This was attributed to the implementation of a rating system based on the accountability index, which is credited for having encouraged heads of departments to pay close attention to the financial management of their units. Based on the assessments, the financial management performance of 10 ministries and four departments were rated as “excellent”, 15 ministries and 36 departments as “good” and the remaining four departments as “satisfactory”.
Of the 386 agencies evaluated last year, 47 or 12.17% were rated “very good”, compared with 7.25% or 20 of the 275 agencies examined in 2008. A total of 357 or 93.5% of the 382 government agencies whose financial statements were scrutinised last year were given audit certificates without reprimand.
Unfortunately, the bad news provide some grim warnings of weaknesses in the national financial outlook. The report noted that the ratio of public debt to gross domestic product (GDP) had risen to 53.7%, the highest level in five years. This was the first time it had crossed the 50% mark.
Weaknesses in financial management were evident in the federal administration, statutory bodies and government-linked companies (GLCs) that were audited.
The assets of GLCs had grown to RM304.89 billion in 2008 from RM200.95 billion in 2007, with national petroleum company Petroliam Nasional Bhd (Petronas) holding the most assets (RM171.53 billion), followed by the government’s investment arm Khazanah Nasional Bhd with RM52 billion in assets. The total liabilities of GLCs were also found to have risen by 50% to RM151.8 billion in 2008 from RM101.2 billion in 2007 (see “MoF gets thumbs up for close watch on GLCs” on page 75).
The National Audit Department undertakes three kinds of audits in compliance with constitutional provisions and the Audit Act 1957. These are an attestation of the federal government’s financial statement, a compliance audit of the management practices of federal ministries and departments and a performance audit on the efficiency and prudence exercised in government activities.
The shortcomings included:
● Exceeding the approved allocation: Eleven ministries exceeded the approved allocation for emolument, services and supplies, acquisition of capital assets, subsidies and fixed charges.
● An increase in receivables outstanding: The receivable account for the year ended 2009 stood at RM21.93 billion, an increase of RM9.87 billion (81.8%) compared with RM12.06 billion for the year ended 2005. The increase was a result of the ministries/departments accounting for all outstanding receivable accounts on revenue, loan repayment and other debts.
● Non-compliance with accounting standards: The financial statements of 25 government agencies, or 6.5% of the 357 agencies reviewed, were given audit certificates but with a reprimand due to the failure to comply fully with accounting standards.
● Lax procurement controls: A glaring case was the oversupply of cloth for uniforms for the People’s Voluntary Corps (Rela) from December 2006 to 2009, landing the auxiliary force with RM16.52 million worth of unused material. A number of haemodialysis centres were found to have paid for equipment in full before it was tested or even delivered, and a centre in Klang was found to be bare of any equipment.
Owing to the short implementation period for the first stimulus package, which was introduced in November 2008, several financial and procurement procedures had not been fully followed. Also, lacklustre monitoring by ministries/departments and their consultants resulted in unsatisfactory goods or services received.
● Delays in project implementation, disbursement and supply: Construction of the Klang marine police base was delayed by over a year and the work was not up to standard. Construction of the Kedah police headquarters and living quarters was not on schedule, costing an additional RM4.68 million.
● Poor maintenance of facilities: The shooting range complex in Langkawi that was purpose-built for the 1998 Commonwealth Games was badly under-utilised, not maintained and not secure, resulting in a deterioration of the facilities.
● Unsatisfactory collection of tax arrears: Due to a shortage of staff, income tax audit teams were late in examining 244 (62.2%) out of 392 cases, involving additional taxes and penalties amounting to RM14.15 million. Last year, the Inland Revenue Board (IRB) collected RM78.38 billion in income tax, petroleum tax, stamp duty, real property gains tax and other taxes, while the arrears amounted to RM9.25 billion. In a number of cases, the IRB failed to take the defaulters to court, bar them from travelling overseas or place caveats on landed property.
To address these shortcomings, the AG made 250 recommendations to the relevant bodies. These include:
● Increasing loan recovery: The government should increase its revenue by recovering loans given to state governments, state development corporations, statutory bodies, local authorities, cooperatives and other agencies.
● Providing more resources for tax collection: The IRB should be provided with more staff for collecting taxes and tax arrears, and to conduct field audits. A computerised reminder system for taxpayers should be introduced.
● Improving monitoring: Heads of department and controllers should be more “hands-on” and officers involved with financial management should be given ongoing training. Financial management can still be improved if the heads take action to not only addresses the weaknesses raised by the audit department but also take preventive action to ensure the shortcomings are not repeated.
● Exercising prudence in spending: States and ministries are advised to continue practising prudence in the usage of funds to ensure maximum benefit is derived from the use of public resources.
The Public Accounts Committee (PAC) is planning an inquiry into nine major cases of irregularities identified in the AG’s Report. Among the problems noted was the food supplementation programme for schools, where the food supplied was far inferior to the items contracted for. Other aberrations included patients at five hospitals being overcharged by over RM143,000 for haemodialysis, a RM256 million army camp project in Skudai that was abandoned in 2002 and the National Higher Education Loan Fund (PTPTN) being expected to face a cash flow deficit of RM46 billion. It has also disbursed RM23.78 million to students who had not applied for loans.
The Penang Port Sdn Bhd management is under scrutiny too. PAC chairman Tan Sri Azmi Khalid told reporters the relevant authorities would be called up to explain the situation.
Finally, there is the question of the follow-through from the report. Although the Auditor-General has been widely acknowledged to take his public responsibility very seriously, the National Audit Department’s annual exercise ultimately falters in the last mile mainly because the AG does not have the power to penalise public officials who are found to have mismanaged public funds.
The burning question that remains unanswered is what is needed to change that.
This article appeared in Special Report page, The Edge Malaysia, Issue 831, Nov 8-14, 2010