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AUDITOR GENERAL REPORT

ACTIVITIES OF THE FEDERAL MINISTRIES/DEPARTMENTS

AND MANAGEMENT OF THE GOVERNMENT COMPANIES

SERIES 2

NATIONAL AUDIT DEPARTMENT MALAYSIA

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CONTENTS

PAGE PREFACE xi SYNOPSIS 1

PART 1 IMPLEMENTATION OF ACTIVITIES BY THE FEDERAL MINISTRIES/DEPARTMENTS MINISTRY OF FINANCE Inland Revenue Board Of Malaysia 1. Management Of Company Income Tax 5 Royal Malaysian Customs Department 2. Management And Controls Of Duty Free Shops 8 3. Custom Duties Assessment Of Imported Liquor 14 4. Procurement Of Shoes For Customs Personnel 16 MINISTRY OF NATURAL RESOURCES AND ENVIRONMENT Department Of Irrigation And Drainage 5. Management Of Coastal Erosion Control And

River Mouth Dredging Projects 18

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MINISTRY OF WORKS 6. Facilities Management Of Federal Buildings By

The Ministry Of Works 21 Public Works Department 7. Management Of Terminated Projects 24 MINISTRY OF TRANSPORT Marine Department of Malaysia 8. Construction And Repairing/Upgrading The

Passenger And Multi Purpose Jetties Project 26 MINISTRY OF ENERGY, GREEN TECHNOLOGY AND WATER Sewerage Services Department 9. Management Of National Sewerage Project 29 MINISTRY OF EDUCATION MALAYSIA 10. Management Of The Security Services At

School/Educational Institutions 32 MINISTRY OF HEALTH MALAYSIA 11. Management On The Provision Of Uniforms 35 12. Management Of Rural Water Supply And

Sanitation Programme 37 13. Management Of Health Education Activities 40

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MINISTRY OF URBAN WELLBEING, HOUSING AND LOCAL GOVERNMENT 14. Incinerator Plant Management 42

MINISTRY OF YOUTH AND SPORTS National Youth And Sports Department 15. Management Of Financial Assistance Programme 47

MINISTRY OF INFORMATION COMMUNICATION AND CULTURE 16. Malaysian Emergency Response Services 999

Project 49 Malaysian Broadcasting Department 17. Procurement Management And Equipment

Replacement For Digital Radio Studio 54 National Visual Arts Gallery 18. Additional Building Construction And Roof

Replacement Projects 56

MINISTRY OF HIGHER EDUCATION Department Of Community College Education 19. Management Of Upgrading Community College 59

MINISTRY OF DEFENCE 20. Construction Project Of Army College Of The

Malaysian Armed Forces, Port Dickson, Negeri Sembilan 62

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Royal Malaysian Air Force 21. Maintenance Of Labuan Air Force Base, Labuan

Federal Territory, Royal Malaysian Air Force 65 MINISTRY OF HOME AFFAIRS 22. Anti-Trafficking In Persons And Anti-Smuggling Of

Migrants Programme 67 Royal Malaysian Police 23. Management On Loss Of Asset 71 National Registration Department of Malaysia 24. Management Of Multipurpose Smart Identity Card

Mykad 74

PART II MANAGEMENT OF GOVERNMENT COMPANIES 25. Management On Financial Performance And

Supervision Of Government Companies 77 26. Khazanah Nasional Berhad 79 27. Malaysia Debt Ventures Berhad 81 POSTSCRIPT 87

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PREFACE

1. Articles 106 and 107 of the Federal Constitution

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 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‟s Report will be tabled at each sitting of the Parliament or three times a year in line with the

National Key Results Areas for fighting corruption

under the Government Transformation Programme

2.0. 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 activities have been

carried out efficiently and economically to achieve

its desired objectives/goals.

1.4. Government Companies’ Management Audit – to evaluate whether the Federal

Government Companies have been managed in a

proper manner.

2. My report on the implementation of activities of

the Federal Ministries/Departments and the

management of Government Companies for the year

2012 Series 2 consists of 2 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 construction, infrastructure, maintenance,

asset management, law enforcement, procurement,

revenue management, education, health, human

capital, contract administration and socio-economic

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upgrading programmes. This report contains

observations from the audit of 24 programmes/

activities/projects of 13 Federal Ministries/

Departments, management of 2 Government

Companies and management on financial

performance and supervision of Government

Companies. Generally, weaknesses observed are

such as improper payment; work/procurement did not

follow specifications/was of low quality/was unsuitable;

unreasonable delays; wastage; weaknesses in

revenue management and management of the

Government‟s assets. The said weaknesses were due to negligence when complying with the Government‟s rules/procedure; programmes/activities/projects and

scopes/specifications were not planned and identified

properly; work of contractors/vendors/consultants was

not monitored and supervised closely; poor project

management skills; decisions on procurement were

made late; information systems of the Ministries/

Departments/Government Companies were

incomplete and not updated; outcome/impact of

programmes/activities/projects was not given due

attention; shortage of funds for asset maintenance;

and insufficient officers to collect revenue.

4. Just as the previous Series, relevant Heads of

Departments 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 Heads of

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Departments, a total of 152 recommendations were

made by the National Audit Department.

5. Beginning 2013, the Auditor General‟s Dashboard was created to monitor actions taken by

the Ministries/Departments/Government Companies

on Audit issues raised. It also serves as a

dissemination channel to the public on the status of

actions taken. Through this approach, each Audit

issue raised will be given due attention by the

Ministries/Departments/Government Companies and

pending cases could also be settled as soon as

possible.

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

25 July 2013

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SYNOPSIS

AUDITOR GENERAL REPORT FOR THE YEAR 2012

ON ACTIVITIES OF THE FEDERAL

MINISTRIES/DEPARTMENTS AND MANAGEMENT OF THE

GOVERNMENT COMPANIES

NATIONAL AUDIT DEPARTMENT MALAYSIA

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SYNOPSIS

PART I - IMPLEMENTATION OF ACTIVITIES BY THE

FEDERAL MINISTRIES/DEPARTMENTS

MINISTRY OF FINANCE

Inland Revenue Board Of Malaysia 1. Management Of Company Income Tax

a. The Inland Revenue Board of Malaysia (IRBM)

implemented the Self Assessment System (SAS)

for companies with effect from the year 2001. The

purpose of implementing this system is to

encourage companies to declare and pay the tax

payable/balance of tax payable voluntarily. In order

to verify the accuracy of income tax declared by

companies through this system, IRBM carries out

tax audit activity to determine the level of

companies‟ compliance with tax laws and to

educate them towards voluntary compliance. In this

regard, IRBM carries out 2 types of tax auditing

which are field audit and desk audit. Generally,

field audit is more effective than desk audit in

detecting tax evasion and thereby increasing tax

compliance as field audit can trace the source

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documents and records for verification on accuracy

of tax computation as submitted by companies.

Audit findings based on sampling revealed that the

Branch‟s performance in achieving its Key Performance Indicators (KPI) for field audit was

good. However, there were some weaknesses in

the implementation of assessment activity and tax

collection as follows:

i. a total of 1,422 field audit cases were settled

late between 1 month to 5 years involving

additional tax and penalty amounting to

RM189.82 million;

ii. audit checklist was not filled up for 656

companies where additional tax and penalty

charged amounted to RM61.74 million;

iii. notice of reminder was not issued to 87

companies which failed to keep complete

records;

iv. integrity monitoring on Field Audit Officer

through surprise visit was not satisfactory for

Corporate Tax Department and 8 other

branches;

v. notice of estimate assessment amounting to

RM3.52 million was not issued to 44

companies;

vi. tax arrears for 147 companies amounted to

RM54.03 million;

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vii. increase in tax (fine) amounting to RM4.25

million was not imposed on tax arrears and

failure to comply with tax instalment payment

scheme resulted in a loss to the Government;

and

viii. civil suit action and caveat on landed property

were not taken against companies which did

not pay tax arrears.

b. To further improve the management on company

income tax, it is recommended that IRBM

considers the following:

i. enhance monitoring on work progress of every

case;

ii. ensure that work procedures are being

complied with such as making it compulsory to

fill up the audit checklist and issue notice of

reminder to companies which failed to keep

complete records;

iii. review the Surprise Visit Register, minimum

visit frequency and sample selection criteria for

surprise visit such as category of taxpayer,

number of team and Field Audit Officer;

iv. review and improve the capacity of automation

system such as the Case Management System

(CMS), the Self Assessment System For

Company (STSC) and the Revenue

Management System (ReMS) so that the

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efficiency on the management of company

income tax could be enhanced.

v. strictly enforce tax arrears collection in order to

safeguard the Government from loss of

revenue; and

vi. enhance the internal inspection on tax audit

activity and tax collection at IRBM branches

from time to time. Furthermore, ensure that

immediate actions are taken on non-

compliance issues and monitor so that the

same issues do not recur.

Royal Malaysian Customs Department 2. Management And Controls Of Duty Free Shops

a. The Royal Malaysian Customs Department

(RMCD) is responsible for the collection of revenue

in the form of taxes and customs duties as well as

providing facilitation to the trade and industry

sectors. In accordance with its mission to

accelerate economic growth, RMCD plays a major

role by providing facilitation to the country's tourism

sector through the establishment of Duty Free

Shops (DFS) under Section 65D of the Customs

Act 1967. Basically, there are five types of DFS,

namely, International Airport DFS, Port DFS,

Downtown DFS, Border DFS and Domestic DFS.

All DFS provide a facility for international travellers

to purchase duty free goods thus promoting the

tourism industry. In October 1997, RMCD issued

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Customs Standing Orders No. 55 (Duty Free

Shops) to streamline the application and licensing

procedures as well as integrating control measures

on DFS. As at the end of 2012, RMCD has

approved 52 licensees with a total of 69 DFS

premises. Based on RMCD‟s Annual Report, the total sales of DFS for the period 2010 to 2012

amounted to RM2.417 billion wherein sales of

RM1.041 billion in 2010 has dropped 8.1% to

RM0.957 billion in 2012. Audit findings revealed

that generally, the management and controls of the

DFS were not satisfactory as DFS were not

managed properly and efficiently. Among the

weaknesses identified were as follows:

i. DFS licenses were renewed even though

licensees did not comply with the percentage of

Bumiputera shares (70% for Downtown DFS

and 30% for other DFS) as well as inactive

licensees (dormant DFS). In this regard, the

annual license fee which is too low (RM600 per

year) is the cause for inactive licensees for

being able to renew their DFS licenses;

ii. customs duties on the current stock of 9 DFS in

Kedah, Perlis and Selangor amounted to

RM15.09 million as compared to their bank

guarantee of RM6.54 million. This means that

customs duties of RM8.55 million were not

covered by bank guarantees which may cause

RMCD to suffer loss;

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iii. duty free goods of one International Airport DFS

at Skypark Terminal, Subang were not kept in a

proper and safe place; one out of 2 Domestic

DFS at Padang Besar, Perlis did not tag duty

free goods with "Malaysian Duty Not Paid"; and

a Border DFS at Bukit Kayu Hitam, Kedah did

not comply with the standard bagging of duty

free goods sold;

iv. one out of 2 Domestic DFS at Padang Besar,

Perlis and all 5 Downtown DFS located at the

Federal Territory of Kuala Lumpur (FT Kuala

Lumpur) and the state of Selangor did not

maintain a register to record relevant particulars

of their customers;

v. the DFS Customs Control Station at Subang,

Selangor was unable to carry out their

responsibilities of matching original DFS sale

invoices to copies of the same invoice certified

by the Export Attestation Custom Station. This

was due to the lack of manpower;

vi. there were cases where duty free goods sold by

DFS exceeding the permitted quantities or to

those not entitled as follows:

for a selected two days, all Downtown DFS in

FT Kuala Lumpur and the state of Selangor

sold duty free goods (mostly liquor) to the

same crews of 15 ships. As a result, every

crew has purchased duty free goods that

exceeded the permitted quantities, thus

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causing loss of revenue amounting to

RM216,715;

the same 5 Downtown DFS issued invoices

of sale of liquor to crews of 11 ships that had

sailed, did not berth or did not sail in the

month of December 2012. Some of the ships

were neither in the records of the Marine

Department Central Region nor in the

records of berth controls Westport Malaysia

Sdn. Bhd., Selangor. Based on Audit‟s analysis, if the sale of liquor by these

Downtown DFS could not be proven to have

been actually exported, the estimated

revenue loss to the Government would be

RM230,536 for 2 days only; and

three out of 6 Border DFS (two in Bukit Kayu

Hitam, Kedah and one in Padang Besar,

Perlis) sold duty free goods in bulk to

enforcement agencies of Thailand.

vii. the application for tax remission in 2009 and

2012 was yet to be decided by the RMCD

Headquarters even though there was a

potential revenue of RM1.99 million to be

collected; and

viii. weaknesses in monitoring, where all state

RMCD audited (except RMCD KLIA) did not

maintain records relating to total customs

duties waived; only 175 (47%) out of 372

planned stock checks were conducted and

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monthly/yearly reports were not submitted to

the RMCD Headquarters. However, the non-

maintenance of records relating to total

customs duties waived was due to the fact that

such requirement was not stated in the

Customs Standing Orders No. 55.

b. It is recommended that RMCD gives due considerations to the following:

i. ensure that all licensees submit the latest

status on the percentage of Bumiputera shares

within the specified period. As for the

committee set up to review DFS license fees,

the outcome of the meeting should be

submitted to the National Audit Department

(NAD) before 31 December 2013;

ii. ensure that all DFS (including DFS not covered

in this audit) have sufficient bank guarantees to

cover the total customs duties of their duty free

stocks;

iii. ensure that Langkawi Duty Free (M) Sdn. Bhd.

at Skypark Terminal, Subang completes the

installation of grills before 31 August 2013 and

all Domestic DFS and Border DFS comply with

the standard of labelling/bagging of duty free

goods;

iv. ensure that all Domestic and Downtown DFS

maintain a register to record relevant

particulars of their customers;

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v. ensure that DFS Customs Control Stations

carry out their responsibilities of matching

original DFS sale invoices to copies of the

same invoice certified by the Export Attestation

Custom Station;

vi. ensure that the special task force ascertains

the actual amount revenue lost due to the sale

of liquor to those not entitled and submit the

investigation report to NAD on or before 31

August 2013;

vii. ensure that the licenses of Downtown DFS in

FT Kuala Lumpur and the state of Selangor are

not renewed. However, related companies

should be awarded licenses as Port DFS on

the condition that their business premises are

located at ports or ferry terminals serving

international passengers;

viii. ensure that immediate decisions are made on

all applications for tax remission under Section

18(1) of the Customs Act 1967 as it has a

potential revenue of RM1.99 million to be

collected; and

ix. ensure that State Customs Directors monitor

all DFS Customs Control Stations in carrying

out DFS stock checks every 3 months and

submit monthly/yearly DFS reports to the

RMCD Headquarters within the stipulated

period. In this regard, the review of Customs

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Standing Orders No. 55 should be completed

by 31 December 2013.

Royal Malaysian Customs Department 3. Custom Duties Assessment Of Imported Liquor

a. The Royal Malaysian Customs Department

(RMCD) is responsible for the collection of revenue

in the form of taxes and customs duties as well as

providing facilitation to the trade and industry

sectors while ensuring full compliance with laws

and regulations in order to avoid revenue leakages.

For the period 2010 to 2012, RMCD collected

revenue amounting to RM90.849 billion. Revenue

collected in 2012 amounted to RM32.319 billion, an

increase of RM4.168 billion (14.8%) as compared

to RM28.151 billion in 2010. Among the factors that

contributed to the achievement of the targeted

revenue collection was the collection of import

duties (including excise duty and sales tax on

imports) amounting to RM26.558 billion or 29.2%

of the total revenue collected for the period 2010 to

2012. For the same period, customs duties

collected from the importation of liquor amounted

to RM594.91 million, representing 2.2% of the total

import duties. Audit findings revealed that

generally, import duties for liquor was satisfactorily

assessed by RMCD and complied with relevant

laws and regulations. However, there were some

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weaknesses that needed to be addressed as

follows:

i. all import of liquor required the approval of the

Food Safety and Quality Division, Ministry of

Health Malaysia. However, for the period 2010

to 2012 no such approval was granted for

59.9% of all liquor imported;

ii. Audit examination on 28,062 items of liquor

imported in 2010 to 2012 revealed that 1,174

(4.2%) items with customs duties amounting to

RM1.63 million (0.9%) were wrongly assessed

by customs officers, and

iii. the error in assessment of imported liquor

resulted in an under-collection of at least

RM1.95 million in revenue.

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

i. provide a comprehensive guideline on the

assessment of imported liquor with a list of

types and brands of commonly imported liquor

so that import duties could be correctly

assessed by customs officers;

ii. train and expose customs officers on the

different types and brands of commonly

imported liquor to avoid ambiguities and

enable them to ascertain the correct

classification and customs tariff;

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iii. ensure that importers settle all Bills of Demand

issued and pay the under-collected revenue;

and

iv. scrutinise Customs Form K1 and K9 for the

import of liquor in 2010 to 2012 to ensure the

recovery of any under-collected revenue and

report the results periodically (quarterly) to the

National Audit Department.

Royal Malaysian Customs Department 4. Procurement Of Shoes For Customs Personnel

a. The regulations for the supply of uniforms

(including shoes) to the uniformed civil services are

stipulated under the Service Circular No. 7 of 1990

and its amendments through the Service Circular

No. 5 of 1995. According to the regulations, all

uniformed officers and personnel shall be supplied

with 2 pairs of shoes by the end of April each year.

Procurement of shoes for all personnel of the

Royal Malaysian Customs Department (RMCD) is

managed by its Headquarters and for the period

2009 to 2013, a total of RM6.86 million was spent

for the procurement of shoes. Audit findings

revealed that in general, the management in the

procurement of shoes by RMCD was not

satisfactory. Among the weaknesses found were

as follows:

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i. as at the end of November 2012, shoes

procured in 2012 for Customs officers were not

distributed yet even though regulations

stipulated that all uniforms (including shoes)

should be provided by the end of April; and

ii. as at the end of 2012, the balance of shoes

purchased in 2009 was yet to be distributed

and a total of 7,659 pairs of shoes worth

RM602,089 were damaged and needed to be

disposed.

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

i. expedite the procurement and distribution

process by identifying any causes of delay

within its controls and carrying out

improvements by:

creating a database of all personnel and

their shoe sizes in order to shorten time

required to gather data from each

state/division;

expedite the process of preparing the

briefing paper for the consideration of the

Tender Board (B) of the Ministry of Finance;

and

ii. investigate whether the disposal of shoes

amounting to RM602,089 that resulted in a loss

to the Government was due to inefficiency and

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negligence by officers responsible in

procurement or those responsible in the

distribution of the shoes and submit the relevant

report to the National Audit Department.

MINISTRY OF NATURAL RESOURCES AND ENVIRONMENT

Department Of Irrigation And Drainage 5. Management Of Coastal Erosion Control And

River Mouth Dredging Projects

a. The total length of Malaysia coastline is 4,809 km

which includes 860 km at the East Coast of

Peninsular Malaysia; 1,171 km at the West Coast

of Peninsular Malaysia; 1,035 km at Sarawak and

1,743 km at Sabah. The National Coastal Erosion

Study (NCES) that was conducted from November

1984 to January 1986 revealed that 1,380 km from

a total of 4,809 km (28.7%) Malaysia‟s coastline was facing erosion problem. Following from the

NCES findings, the Government instructed the

Department of Irrigation and Drainage Malaysia

(DID) to manage coastal erosion control and river

mouth dredging projects across Malaysia. For that

reason, the Coastal Engineering Technical Centre

[currently known as River Basin & Coastal Zone

Management Division (RBCZMD)] at the

Headquarters/State level was responsible in

planning and implementing coastal erosion control

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and river mouth dredging projects while State

RBCZMD/District DID was responsible in the

project monitoring. The study also classified

Malaysia‟s shoreline into 3 categories of erosion.

As at 2010, a total of RM869 million (99.8%) was

spent compared to RM871 million that was

allocated under the Ninth Malaysia Plan for 202

coastal erosion control and river mouth dredging

projects. There were 2 coastal erosion control

measures used which were structural and non-

structural. Audit findings revealed that physical and

financial performance for all the audited coastal

erosion control and river mouth dredging projects

were satisfactory. However, there were several

weaknesses on project management as follows:

i. the Integrated Shoreline Management Plan

(ISMP) was not prepared for all states in

particular for 5 states that were having the most

serious rate of erosion namely Kelantan, Perlis,

Selangor, Terengganu and Perak;

ii. procurement and contract administration in

terms of contract agreement, project payment

and Certificate of Practical Completion (CPC)

were not done properly;

iii. the construction of several structure/

infrastructure for 3 projects was not suitable/

according to specifications;

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iv. there were project components that were not

optimally used as the DID Complex under the

Improvement of Sg. Pahang‟s River Mouth, Pahang (Phase 1) Project costing RM6.15

million was not fully utilised and properly

managed even though the building was

completed since August 2009 and CPC was

issued in October 2011. On top of that,

equipment for Wave and Weather Station

under the Improvement of Sg. Pahang‟s River Mouth (Phase 1) Project and River Mouth

Dredging, Sg. Kemasin (Phase 1) Project with

the total cost of RM2.70 million and RM0.89

million respectively were not used and stored at

respective State DID; and

v. some of the acquired assets and inventories

were not registered, labelled and stored

accordingly.

b. In order to overcome the weaknesses highlighted

in this report and to prevent them from recurring in

other projects, it is recommended that DID

considers the following:

i. conduct preliminary study for future project to

ensure that every aspect is given due

consideration so that any existing or new

problem arising from the project could be

identified and overcome;

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ii. ensure that project procurement and

administration are done accordingly and in line

with the regulations in force;

iii. ensure that assets and inventories are

managed properly according to the rules in

force;

iv. monitor regularly on the on-going and

completed projects to ensure that immediate

action could be taken if any problems arise. On

top of that, records on coastal erosion and

siltation problems should be maintained for

future project planning purposes; and

v. improve coordination between design team

(Headquarters) and monitoring team

(State/District). Policy/decision should be clear

to avoid overlapping in decision making.

MINISTRY OF WORKS 6. Facilities Management Of Federal Buildings By

The Ministry Of Works

a. The facilities management of Federal Buildings is

specified by the Government as a strategic

management that should be practised by each

Government‟s Ministry and Department. The

purposes of facilities management are to enhance

the safety of users; ensure longer lifespan of

facilities; reduce future expenses; and provide

benefits to users and the management. The

Federal Buildings belong to the Prime Minister‟s

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Department. The buildings are located in four

zones, which are North Zone and Sabah, South

Zone and Sarawak, Central Zone and East Zone.

The Prime Minister‟s Department has assigned the Maintenance Regulatory Division of the Ministry of

Works (Ministry) to carry out the maintenance of 68

Federal Buildings. The maintenance of Federal

Buildings under the supervision of the Ministry has

been privatised to 3 concession companies except

for the Central Zone (Kuala Lumpur and Selangor)

which is maintained by the Maintenance

Regulatory Division of the Ministry. The approved

allocations for this programme were RM139.76

million (2011) and RM140.77 million (2012)

respectively. Audit findings revealed that the

overall facilities management of Federal Buildings

was satisfactory except for maintenance of the

Government Office Complex in Jalan Duta, Kuala

Lumpur. Among the weaknesses identified were as

follows:

i. maintenance and repair works were not carried

out completely;

ii. validity period of maintenance bond submitted

by a concession company was inaccurate;

iii. the amount of penalty was not stated

specifically for each non-compliance of

Technical Requirement Performance Indicator;

and

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iv. monitoring by the Federal Buildings

Maintenance And Coordination Committee and

the Ministry were not satisfactory.

b. In order to overcome the weaknesses, it is

recommended that the Ministry takes the following

actions:

i. enhance monitoring on the maintenance of the

Government Office Complex in Jalan Duta and

make sure that the building is properly

maintained to ensure the safety and comfort of

the building users;

ii. ensure the accuracy of the maintenance bond‟s validity period;

iii. ensure that the minutes of committee meetings

are submitted to the Ministry for monitoring

purposes;

iv. ensure that the penalty clause is stated

specifically to protect the Government‟s interest; and

v. take into account the comments from the

building users so that more effective services

could be provided.

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MINISTRY OF WORKS

Public Works Department 7. Management Of Terminated Projects

a. Terminated projects are projects which are ended

according to contract clause either by mutual

termination or unilateral termination. The contract

specifically gives the Government the right to

determine the employment of contractors who fail

to fulfil their obligations as stated in the clause.

Based on the Public Works Department Project

Monitoring Report (PWD SKALA), a total of 160

projects with contracts value of RM3.137 billion

have been terminated either by mutual termination

or unilateral termination for the period between

2007 and 2012. Audit finding revealed that the

management of terminated projects was not

satisfactory due to weaknesses as follows:

i. outstanding balance of advance payment for 3

projects amounting to RM5.11 million could not

be claimed from bank/financial company/

insurance company;

ii. outstanding balance of performance bond

amounting to RM15.77 million for 21 projects

was not yet claimed by PWD;

iii. the appointment of new contractors for 3

projects was not done through restricted tender

and not referred to the Project Rescue

Committee of PWD;

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iv. the Final Certificates on Determination of

Contractor‟s Employment (Final Certificate) for 16 projects were still not issued as at January

2013 and there were delay between 4 and 44

months in issuing the Final Certificates for 29

projects;

v. a mistake in the Final Certificate for the

contractor resulted in a loss to the

Government; and

vi. weakness in the process of issuing reminder

letters to contractors regarding claims of loss

to the Government due to termination.

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

i. ensure that the outstanding balance of

advance payment paid to contractors is

claimed before the expiry date of advance

payment guarantee to avoid loss to the

Government;

ii. ensure that the balance of performance

guarantee sum is claimed from contractors to

avoid loss to the Government;

iii. ensure that appointment of new contractors

through restricted tender is adhered to;

iv. ensure that the Final Certificates are issued

within the stipulated time;

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v. ensure that the costs involved are taken into

account in the claims made against contractors

as stipulated by the regulation;

vi. provide training to officers who are involved in

the preparation of the Final Certificates on

Determination of Contractors‟ Employment; and

vii. ensure that reminder letters on loss claims are

issued within the stipulated time.

MINISTRY OF TRANSPORT

Marine Department Of Malaysia 8. Construction And Repairing/Upgrading The

Passenger And Multi Purpose Jetties Project

a. The Marine Department of Malaysia (JLM) is

responsible for implementing policies, planning,

research and coordination on matters related to the

sea including port development, shipping industry,

licensing of boats in the states and seafarers

affairs. Under the Ninth Malaysia Plan, an

allocation of RM84.51 million was approved for 12

projects of construction and repairing/upgrading

the passenger, multi purpose and JLM cargo jetties

(Jetty Project) which involved 8 states. A total of 12

contractors were appointed through open tender to

implement the projects conventionally with an

overall cost of RM49.41 million. The

Superintending Officer (SO) for the Jetty Project is

the Director of Marine, JLM. In order to monitor the

27

implementation of the project and protect the

interest of the Government, 9 consultants have

been appointed through a restricted tender at a

cost of RM9.14 million. Audit findings revealed that

in general, the Jetty Project was carried out

satisfactorily with all the projects being completed.

However, there were several weaknesses as

follows:

i. failure to complete 7 jetty projects within the

stipulated time and the extensions of time were

approved late for 3 jetty projects between 9 to

42 days after the contracts had expired;

ii. 2 Final Accounts were not prepared yet and

they were late between 24 months to 28

months 11 days. Meanwhile, 3 Final Accounts

had been prepared but late between 9 days to

17 months 13 days;

iii. there were damages/obsolescence of

buildings/facilities that were completed in Kuah

Jetty, Kedah and Pulau Kambing Jetty, Kuala

Terengganu;

iv. some facilities in Kuala Perlis Jetty worth

RM0.75 million which were completed by JLM

were demolished to be rebuilt for the upgrading

work by the Ministry of Tourism Malaysia and

the project site was not managed properly by

the contractor/PWD;

28

v. maintenance cost for Kuah Jetty, Langkawi,

Kedah was very high compared to the revenue

generated and the percentage difference in

maintenance cost compared to revenue from

2010 to 2012 showed an increase ranging from

219.2% to 348.6%. Whereas the maintenance

cost difference compared to revenue for the

Kuala Perlis Jetty also showed an increase

from -17.2% to 3.6%; and

vi. Pulau Ketam Jetty and Sungai Lima Jetty were

not maintained satisfactorily while in Kuah

Jetty, Langkawi, Kedah, there were some

facilities which required maintenance.

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

i. give serious attention to the contract

administration and ensure that contract terms

were complied with to protect the interest of the

Government;

ii. ensure proper monitoring/control mechanism

so that jetty management could be more

efficient and ensure usage of completed jetties;

iii. ensure coordination between JLM and all

agencies involved in the planning of

construction/upgrading of jetty project to have

maximum impact in terms of cost and usage;

29

iv. review the collection of revenue in comparison

to maintenance cost incurred to ensure that it is

compatible to the services provided by JLM

which is to provide jetty facilities in good

condition; and

v. ensure that maintenance works are carried out

on a consistent basis so that the upgraded jetty

could be fully used by the public.

MINISTRY OF ENERGY, GREEN TECHNOLOGY AND WATER

Sewerage Services Department 9. Management Of National Sewerage Project

a. The Sewerage Services Department (SSD) was

approved an allocation of RM3.162 billion under

the Ninth Malaysia Plan and RM464 million under

the Tenth Malaysia Plan to implement the National

Sewerage System Project. The objective of this

project was to reduce sewage pollution and

improve sewerage services through the

construction of new sewerage infrastructure,

upgrading and repairing the existing sewerage

system. Audit conducted in 2012 revealed that the

financial performance of the national sewerage

project for the year 2010 to 2012 as a whole was

good as expenditure was 95.6% of total allocation

given as at 4 January 2013. However, physical

achievement was poor as only 35 (56.5%) out of

30

62 projects undertaken were completed on

schedule. Audit on the performance and

management of the sewerage project based on 13

projects found weaknesses as follows:

i. 8 (80%) out of 10 projects were not completed

according to the stipulated period where

Extensions of Time (EOT) between 34 to 989

days had been approved. Besides that, 2

projects which were still in progress were

behind schedule and both were approved with

EOT. There was also one project namely

Sewer Network Project in Kuala Sawah, Port

Dickson, Negeri Sembilan which was not

completed and regarded as a „sick project‟, resulting in an increase in cost;

ii. the objectives of sewerage project

implementation in Langkawi and Port Dickson

were not fully achieved yet as identified

premises were not completely connected to the

public sewerage network; and

iii. effluent quality of 9 (56.2%) out of 16

Sewerage Treatment Plant did not meet the

effluent discharge standards set by the

Department of Environment (DOE).

b. In order to rectify the weaknesses raised and to

ensure that they do not recur in other projects, it is

recommended that the Ministry Of Energy, Green

31

Technology and Water/Sewerage Services

Department (SSD) takes the following actions:

i. assess and claim the total amount of losses

from the initial contractor of Sewer Network

Project in Kuala Sawah for failing to complete

the project on time, once the project is

completed by the second contractor;

ii. for other projects to be implemented in the

future, SSD should take into account the cost

of connecting users‟ premises to the public sewer pipes in the new sewerage network

project so that sewerage system could operate

as a whole;

iii. ensure that the existing sewage treatment

plant is upgraded or replaced with a new plant

in order to comply with the effluent quality

standards set by the Department of

Environment. This is to ensure that the

objectives of the sewerage project set by SSD

to control sewage pollution of water resources

could be achieved, and

iv. work together with other law enforcement

agencies, such as the National Water Services

Commission, Department of Environment and

Local Authorities to overcome pollution

problems caused by the effluents of the

residential premises/hotels that do not comply

with the standards.

32

MINISTRY OF EDUCATION MALAYSIA 10. Management Of The Security Services At

School/Educational Institutions

a. The Ministry of Education (Ministry) procured the

services of private security companies to

implement the Security Service (PKK) without

firearm in schools/educational institutions

premises. Among the objectives was to create a

peaceful school environment with conducive

teaching and learning atmosphere that is suitable

for all parties. For the period 2010 to 2012, a total

of RM2.052 billion was spent. Audit findings

revealed that the PKK services were not

satisfactory. Among the weaknesses identified

were as follows:

i. improper contract management where the

performance bond was submitted late and the

contract had been signed although

performance bond was not received;

ii. terms of the contract were unclear/incomplete

because the number of record locks using

watchman clocks, specifications for the

installation of CCTV and alarm system were

not set and security guards‟ profile information were presented upon request only;

iii. breach of contract as the security guards

exceeded the age limit; health and security

screening reports were not submitted;

attendance records were not prepared; guards

33

did not meet the dress code regulations and

they were provided with inadequate and

damaged equipment;

iv. services were not performed satisfactorily

where there was no crowd control; watchman

clocks were not recorded regularly; inadequate

presence of security guards and fine was not

imposed; and

v. irregular payment of claims in which the

Service Implementation Report was not

completed but still approved and paid.

b. To overcome the shortcomings raised and to

improve efficiency in the management of the PKK,

it is recommended that all parties involved take the

following actions:

i. the Ministry should implement PKK

procurement process in accordance with the

regulations set by the Government. Warning or

action to revoke the contract should be taken

against the company which failed to submit the

performance bond within the stipulated period;

ii. the Ministry should review unreasonable and

vague contract terms that are not in favour of

the Government to avoid confusion and

misinterpretation. The Ministry is

recommended to provide video documentation

for a more effective understanding of the

34

PPD/schools about the implementation of the

PKK;

iii. the Ministry/State Education Departments

(JPN)/District Education Offices (PPD)/schools

should be strict and do not tolerate companies

that do not comply with the terms and

conditions of the contract by imposing fines as

well as reporting quality of service to the

authorities. The Ministry should terminate and

blacklist companies that fail to comply with

conditions of the contract and improve the

performance of their services;

iv. schools should ensure that companies

complete the Service Implementation Reports

every month and verify thoroughly every detail

that is filled by the companies to ensure that

service is performed satisfactorily. JPN/PPD

should ensure that every report is completed

by the company with verification by schools

before approval is made for payment

purposes; and

v. the Ministry/JPN/PPD/schools should improve

the monitoring aspect through scheduled and

surprise inspection especially at night to

ensure that the company is providing proper

service.

35

MINISTRY OF HEALTH MALAYSIA 11. Management On The Supply Of Uniforms

a. Uniforms include clothing, hats or “songkok”, shoes, belts and neckties. Uniforms are provided

for identification besides protection from chemical

splash and dirt. According to the Treasury Circular

No. 6 Year 2011, the Ministry of Health (Ministry)

agreed to provide 3 pairs of fabric to qualified staff.

Cloth tailoring is handled directly by the staff where

they are eligible to claim the tailoring charges not

exceeding the maximum rate of RM230 per pair

supported by receipts attached. From March 2012,

the Ministry stipulated that staff can buy their own

shoes and submit claims supported by receipts

subject to a maximum rate of RM150 per pair. Four

companies were appointed through tender to

supply the fabric from October 2010 to June 2012

and 4 other companies were appointed from July

2012 to June 2014. The Ministry also appointed 3

companies to supply shoes for the period 2010 to

2011. Whereas each Responsibility Centre (PTJ)

was responsible for the procurement of cap and

headscarves. Among the weaknesses identified

were as follows:

i. fabric supply contracts were prepared late

causing most of the PTJ being unable to obtain

the supplies in 2010;

36

ii. fabric supplies were ordered from suppliers

which were not appointed in accordance with

the contractual terms;

iii. distribution of fabric supply was not in order

such as distributed late between 7 to 397 days

from the actual date and distribution records

were incomplete, not updated and not in

standard form;

iv. claims on tailoring charges or purchases of

shoes were doubtful; and

v. the uniform application procedure was not

complied with such as no uniformity in terms of

design and most of the staff did not wear

uniform according to the design specified.

b. It is recommended that the Ministry considers the

following:

i. ensure that procurement and supply orders are

executed early so that the fabric could be

distributed to the staff before 30 April each

year;

ii. conduct in-depth investigation on the cases of

supply orders made to companies which do not

have binding contract;

iii. improve the procurement of uniform and shoes

such as appointing specific panel shops for

sewing staff uniform to avoid dubious claims by

staff; and

37

iv. study the best method to ensure that uniform

application procedures are followed by

imposing fines for any offence.

MINISTRY OF HEALTH MALAYSIA 12. Management Of Rural Water Supply And

Sanitation Programme

a. The Rural Water Supply and Sanitation

Programme (BAKAS) was implemented by the

Ministry of Health (Ministry) since 1973 in order to

prevent water borne diseases, especially for rural

areas. The operation areas for BAKAS programme

were rural areas that included traditional villages,

modern villages, indigenous villages and estates. It

also included areas under the supervision of the

Ministry of Rural and Regional Development

(KKLW), the Federal Land Development Authority

(FELDA), Federal Land Consolidation and

Rehabilitation Authority (FELCRA), mines, estates,

residential, shop houses and other premises at

rural areas as well as individuals who did not

receive any services from the Local Authority (LA).

The main objective of BAKAS Programme was to

prevent and control water borne diseases such as

cholera, typhoid, diarrhoea, dysentery and hepatitis

A among the rural population. It was implemented

by improving environmental sanitation and quality

of water supply through the provision of basic

amenities of clean water supply and proper

38

sanitation systems. Allocations approved for the

programme amounted to RM7.46 million (2010),

RM40 million (2011) and RM36.30 million (2012).

Audit findings revealed several weaknesses in the

management of BAKAS programme as follows:

i. improper application and approval of the

project such as format of the forms used by

District Health Offices (PKD) was not in

accordance with the format prescribed in the

BAKAS Manual; unreasonable project approval

period between 68 to 1,098 days from the date

of application received and the application

register was not maintained/not complete;

ii. procurement regulations were not fully

complied with where there was no written

appointment of the Evaluation Committee and

the Opening Quotation Committee for

procurement undertaken in 2010 to 2012 for

PKD Bandar Baharu; procurement of High

Density Polyethylene Pipe (HDPE) was not

supplied by the appointed panel supplier by the

Ministry of Finance and there was no formal

contract for procurement valued more than

RM50,000;

iii. Public Liability Insurance and Work Insurance

on behalf of the Government for 15 projects

worth RM1.65 million were not provided by the

contractor because the requirements were not

specified in the quotation or offer letter to the

contractor;

39

iv. delay in completion of the project between 20

to 194 days in PKD Tumpat, Baling, Bandar

Baharu and Area Health Office (PKK) Tuaran.

However, fine could not be imposed because it

was not specified in the contract clauses; and

v. BAKAS stores in PKD Bachok and Tumpat

were not properly managed as required by the

Treasury Circular No.5 Year 2009 and there

was no movement for 35 stock items worth

RM24,046 since 2002.

b. It is recommended that the Ministry takes the

following actions:

i. set time norms for project approval and ensure

that the BAKAS Programme Manual is used at

every level. In addition, PKD should monitor the

project and ensure that the application register

is updated so that monitoring could be

implemented more effectively;

ii. ensure that all PKD/PKK comply with

procurement regulations to protect the

Government‟s interest. In addition, market survey should be carried out effectively before

purchase so that expenses incurred by the

Government could be minimized;

iii. ensure that contractors provide insurance

policy, failing which, the Government may have

40

to bear the risk in the event of accidents at the

project site;

iv. standardise action should be taken to ensure

that each PKD/PKK includes penalty clauses in

the specification/offer letter to contractors; and

v. the Management/Head of Department in every

PKD should conduct periodic inspections to

ensure that stock keeping procedures are

being followed and ensure safety of the store.

Appropriate action should be taken immediately

for stocks that were not used for a long time to

avoid wastage.

MINISTRY OF HEALTH MALAYSIA 13. Management Of Health Education Activities

a. Health education is integral in the early systematic

approach towards building health literacy and

healthy lifestyle culture amongst Malaysians. The

Ministry of Health (Ministry) through the Health

Education Division is responsible for carrying out

this function by providing services such as

planning; development; implementation and

evaluation of programmes; management of

campaigns such as the Healthy Lifestyle

Campaign, celebration of health days; distribution

of health educational and promotional materials.

Allocations approved for this programme amounted

to RM34.85 million (2010), RM40.35 million (2011)

and RM47.47 million (2012). The dissemination of

41

information on this programme was made through

mass media, publication of educational media,

alternative media (Facebook/Twitter, Blog),

television commercials, radio, magazines, cinema

advertising spots and on the table top of selected

restaurants. Health education activities were

extended by organising health programmes in line

with global celebrations such as World Health Day,

World AIDS Day and World Diabetes Day. Audit

findings revealed the weaknesses as follows:

i. there were no formal contract for the

publication of campaign materials;

ii. delay in signing the contract agreement and

incomplete contract documents;

iii. performance bonds were not verified;

iv. lack of monitoring on the grant awarded to

Non-Governmental Organisation (NGO)

involved in the Dengue Communication for

Behavioural Impact programme (COMBI);

v. cost of developing social networking site

Facebook/Twitter amounting to RM0.32 million

was not justified; and

vi. management of billboards and stores was

unsatisfactory.

b. It is recommended that the Ministry takes the

following actions:

42

i. improve the management of contract

documents to protect the Government‟s interest;

ii. enhance the management of social site so that

it is more dynamic, relevant and updated to

ensure successful implementation of health

campaigns;

iii. improve the management and maintenance of

billboards in order to disseminate health

messages to the public effectively and

enhance the management of promotional

materials to avoid wastage and obsolescence;

and

iv. emphasise on proper language, spelling and

message appropriateness in brochures and

billboards.

MINISTRY OF URBAN WELLBEING, HOUSING AND LOCAL GOVERNMENT 14. Incinerator Plant Management

a. The Ministry of Urban Wellbeing, Housing and

Local Government (KPKT) constructed incinerator

plants using the autogenous combustion

technology proposed by XCN Technology Sdn.

Bhd. (XCNT) in Pulau Langkawi, Pulau Pangkor,

Cameron Highlands and Pulau Tioman. Besides

that, this technology was also used for the

improvement of the Thermal Oxidation Plant (TOP)

43

Project in the Federal Territory of Labuan. These

new plants were expected to solve the problem of

solid waste management at respective locations.

The Department of National Solid Waste

Management (JPSPN) was the owner of the

projects and was responsible for managing and

operating the incinerator plant upon completion of

the projects. Under the Ninth and Tenth Malaysia

Plan, a total of RM199.09 million from RM337.45

million allocated by the Federal Government was

spent on the construction of the incinerator plant

projects. Audit findings revealed that overall, the

management of incinerator plant projects by KPKT

was not satisfactory. Among the weaknesses

identified were as follows:

i. physical performance of the incinerator plant

projects was not satisfactory where all 4

projects were given extension of time (EOT)

between 240 to 693 days. Of the 4 projects,

only one project was completed within the

EOT, 2 projects were delayed for 46 and 104

days, while another project was still not

completed as at 6 May 2013, which was 330

days after the EOT. Besides that, only one

incinerator plant was operating while the other

2 were still not operating after completion with

delay between 223 to 642 days;

ii. the operation of Pulau Pangkor Incinerator

Plant was not satisfactory because it did not

44

operate autogenously, the set temperature

range could not be achieved and output could

not be produced at the fixed rate;

iii. weaknesses in the management of the plant

operation and maintenance contract due to

delay in finalizing the incinerator plant

operation contract documents and the manual

on the plant operation and maintenance was

not prepared yet;

iv. KPKT spent RM7.23 million for Labuan TOP

refurbishment project although it was still in the

process of arbitration with the previous

contractor for TOP construction wherein the

project had to be terminated at the end;

v. flaws in the design caused the incinerator plant

not to operate optimally;

vi. non-compliance with the Environmental Impact

Assessment (EIA) requirements;

vii. Testing and Commissioning (T & C) of

incineration plants were not conducted

properly, and

viii. non-compliance with the Occupational Safety

and Health Act and the Factories and

Machinery Act.

b. It is recommended that the respective parties take

the following actions for improvements:

45

i. KPKT should provide the basis of effective

management of solid waste from the source

(house/premises) and raise awareness to the

people about the importance of separation of

solid waste from the house so that the quality

of waste sent to incineration plants could be

improved to overcome the quality of solid

waste‟s calorific value (cv) and moisture content;

ii. KPKT/JPSPN/XCNT should improve solid

waste treatment process to ensure that the

quality of solid waste (cv and moisture content)

complies with the standards required before

being burned by the incinerator plants so that

autogenous combustion could be achieved and

diesel consumption could be minimized;

iii. KPKT should ensure that incinerator plant‟s operators possess the skills as required by

acceptable standard during handling the solid

waste in order to comply with the operation

standard, environmental regulations as well as

safety and health regulations. Relevant training

should also be given from time to time;

iv. KPKT and JPSPN should monitor closely the

compliance with the terms of the contract,

particularly in managing T & C process;

compliance with EIA issued by the Department

of Environment; quality of construction;

46

compliance with the laws in order to ensure

that the Government gets value for money;

v. JPSPN should provide a guideline to oversee

and monitor the management of the incinerator

plant operations so that all the rules are

followed and the plant is always being

operated safely;

vi. JPSPN should establish a mechanism to

ensure full compliance with the operating

conditions of the contract prior to payment to

the contractor; and

vii. JPSPN should create a committee consisting

of agencies directly involved in the monitoring

of the incinerator plant operations including the

Department of Environment, Safety and Health

Department and the Solid Waste Management

and Public Cleansing. In addition, the

committee should also help JPSPN to outline

the conditions to be included in the contract of

operation and maintenance of incineration

plants. Benchmarking with successful

incinerator‟s operators could be made to ensure that the incinerator plant is properly

managed in accordance with applicable laws

and regulations.

47

MINISTRY OF YOUTH AND SPORTS

National Youth And Sports Department 15. Management of Financial Assistance

Programme

a. The National Youth and Sports Department (JBSN)

under the Ministry of Youth and Sports was one of

the agencies which worked in tandem with Non-

Governmental Organisations (NGO) as a measure

to reach out to the targeted groups consisting of

youth and young people. Accordingly, the Financial

Assistance Programme by JBSN was established

to ensure that Youth, Sport and Rakan Muda

Development policies could be carried out

successfully in collaboration with NGO/Association/

Organisation. This programme was started in 1997

and applications for assistance under this program

were also received in the same year. The targeted

groups for this programme were NGO/Association/

Organisation registered either under the Registrar

of Youth Societies, Sport Commissioner or Rakan

Muda Secretariat. This programme was funded by

the Ministry‟s allocation amounting to RM171.75 million for the period 2009 to 2012. The Economic

Stimulus Package (PRE) also allocated an amount

of RM100 million for this programme. There were 2

categories of financial assistance provided which

were Administrative Assistance and Activity

Assistance. The Guideline for Consideration In

Providing Government Assistance to NGO was

48

issued on 5 November 1997 (GPPB 5 November

1997) by the Ministry of Finance to ensure that

NGO/Association/Organisation that received the

assistance carried out activities in line with the

Ministry/Department policy and objectives.

Consistent with the said guideline, the Guideline for

Financial Assistance Programme (GPPB JBSN)

was then issued by JBSN on 6 December 2008 to

standardise and ensure that the Financial

Assistance Programme was carried out effectively.

Audit findings revealed that in general the

implementation of the Financial Assistance

Programme was not satisfactory. Among the

weaknesses identified were as follows:

i. the application and approval procedure for this

programme were not done accordingly and did

not meet the conditions set;

ii. conditions of the agreement were not enforced;

iii. weaknesses in distribution of fund and

payment to suppliers; and

iv. weaknesses in programme monitoring.

b. In order to overcome the weaknesses highlighted

and to prevent the same weaknesses from

recurring in the implementation of Financial

Assistance Programme, it is recommended that the

responsible parties take the following actions:

49

i. JBSN should ensure that approvals are given

only to programmes which are allowed under

the guideline issued;

ii. JBSN should ensure that the payment

mechanism is in line with financial rules and

best practices so that expenses are made

accordingly and prudently;

iii. JBSN should conduct periodic monitoring on

the approved programme as well as prepare

and submit annual report to the Federal

Treasury; and

iv. the Federal Treasury should ensure that JBSN

prepares and submits the annual report and

conduct checks to control the expenses under

the Financial Assistance code.

MINISTRY OF INFORMATION COMMUNICATION AND CULTURE 16. Malaysian Emergency Response Services 999

Project

a. The Malaysian Emergency Response Services 999

Project (MERS 999) was implemented in May 2007

under the Ministry of Energy, Water and

Communications (MEWC) with the objective to

provide a comprehensive and integrated

emergency line services using the number 999 with

One Malaysia One Number concept. In 2009, the

communication function was consolidated under

the Ministry of Information Communication and

50

Culture (MICC) and the project continued under the

new ministry. Telekom Malaysia Berhad (TM) was

appointed through direct negotiations to develop

this project with a total cost of RM801.55 million.

This included the cost of development (Capital

Expenditure-CAPEX) amounting to RM596.25

million and the cost of operating (Operating

Expenditure-OPEX) amounting to RM205.30

million. Audit findings revealed that the overall

project management was particularly poor in

contract compliance, contract administration and

project monitoring. Among the weaknesses

identified were as follows:

i. late execution on the development and

installation of MERS 999 system in 16 sites

and 34 sites were operated later than the

timelines stipulated;

ii. increase in the number of non-emergency calls

and there were continuous occurrence of drop

calls;

iii. the first interim payment amounting to RM26.4

million was made before the issuance of Letter

of Acceptance (LOA) while the signing of 2

contracts was delayed between 8 to 10 months

from the date of the LOA;

iv. the validity period of the performance bond

guarantee did not cover the warranty period of

12 months after the contract ended;

51

v. appointment of local and foreign consultants

did not comply with the financial regulations

and the consultancy service fees exceeded the

prescribed rate by RM1.92 million. The

consultancy service fees amounting to

RM25.88 million was paid in lump sum without

supporting details on the services provided.

The cost of reimbursement on consultant

services amounting to RM480,000 was paid in

a lump sum without being supported by

receipts. In another instance, the project

management fee was overpaid amounting to

RM295,036;

vi. payments for cost of conducting workshops

amounting to RM3.43 million, courses

conducted amounting to RM1.90 million and

overseas trips amounting to RM3.34 million

were made without complete supporting

documents. The cost of workshops conducted

amounting to RM2.03 million did not comply

with the prescribed rate. Workshops and

courses for the contractor personnel totalling

RM3.27 million were paid by the Government;

vii. rental of TM Training Centre, Taman Desa was

double charged;

viii. the cost of overseas trip totalling RM253,813

was not reasonable. Payment amounting to

RM3.19 million was made on cancelled

promotional and publicity programmes. While

promotional and publicity programme payments

52

totalling RM2.86 million were made without

being supported by proper and complete

documentation;

ix. incentive payments to Master of Trainers

(MOT) amounting to RM295,094 that should be

borne by TM has been paid by the

Government. While the office space rental

charges amounting to RM373,312 and the

recurring charges for Automatic Number

Identification/Automatic Location Identification

connectivity totalling RM0.9 million were

overpaid to the contractor. A payment

amounting to RM1.03 million was made for

hardware and software which were not

supplied; and

x. the monitoring committee was not effective in

safeguarding the interest of the Government

according to the terms of the rules and

conditions of the contract causing an improper

payment amounting to RM13.54 million.

b. It is recommended that the Ministry implements the following:

i. ensure that the MERS 999 system operates

according to set schedule so as to ensure that

the project objectives could be achieved;

ii. address the problem of non-emergency calls by

implementing actions in accordance with the

laws;

53

iii. include penalties in all contract documents for

contractors who fail to achieve the stipulated

quality of service;

iv. ensure that direct negotiations comply with

financial regulations, all contract agreements

are prepared in a timely manner and the project

is managed properly;

v. ensure that the appointment of consultants,

management of training, overseas trips and

management of promotion and publicity are

implemented in a transparent manner and in

accordance with the financial regulations;

vi. set up a Committee of Inquiry and review all

transactions/claims/payments made under the

MERS 999 Project. All improper payments

arising from TM‟s discrepancies must be

recovered and appropriate actions should be

taken against the identified officers who

committed the offence;

vii. take legal action in accordance with the terms

in the contract and report to the Ministry of

Finance for appropriate action to be taken

against the contractor for failing to comply with

contractual obligations and government

regulations in force;

viii. prepare procurement guidelines and enforce

them to ensure a more systematic and

transparent implementation and give best value

for money to the Government; and

54

ix. review all charges raised by Audit amounting to

RM91.42 million, including a total of RM27.59

million of unreasonable fee and overpayments.

All improper payments should be recovered

from TM by the ministry after investigations are

made.

MINISTRY OF INFORMATION, COMMUNICATION AND CULTURE

Malaysian Broadcasting Department 17. Procurement Management And Equipment

Replacement For Digital Radio Studio

a. The acquisition of replacement equipment for the

digital systems was to improve the efficiency of the

radio programmes production and to ensure a

better audio quality to listeners. As at December

2012, the Malaysian Broadcasting Department

spent a total of RM44.52 million from the allocation

of RM54.50 million for the replacement of analogue

to digital equipment. Audit findings revealed that

overall, the digital radio studio equipment

procurement was satisfactory. However, there

were weaknesses identified as follows:

i. contract specifications on the skid tank supply

for Bintulu Broadcasting Station were not fully

complied with;

55

ii. improper payment involving equipment not

supplied worth RM24,440 but full payment had

been made to the contractor;

iii. the Master Clock System amounting to

RM116,000 was incomplete causing it not to

function accordingly. In addition, the acquired

equipment amounting to RM151,018 had not

been used;

iv. the involvement of training participants and the

security level of the premise were not

satisfactory; and

v. information on faulty equipment worth

RM75,601 was not recorded.

b. It is recommended that the Malaysian Broadcasting

Department considers the following actions:

i. ensure a well-planned procurement of

equipment based on the actual needs to avoid

wastage;

ii. ensure that the equipment supplied is

functioning properly and could be used at

optimum level to achieve value for money;

iii. the Ministry of Finance issues financial

instructions allowing agencies to include a

clause in the tender document to enable the

Government to remove items that are too

expensive compared to market price and

allowing them to be acquired separately;

56

iv. ensure that the Price Evaluation Committee

(JKPH) analyses the prices offered by

tenderers based on open market prices in

accordance with Treasury Instruction 169.1 to

ensure that every procurement provides the

best return for each dollar spent (best value for

money);

v. appoint a Committee of Inquiry to investigate

on the equipment not supplied which caused

loss to the Government;

vi. maintain proper records such as recording

faulty equipment in accordance with the

Treasury Circular No.5 Year 2007 to facilitate

the management to take appropriate action;

and

vii. RTM should increase the security level at

Bintulu Broadcasting Station by restricting

access to the premise and strengthening the

windows and doors with safety devices.

MINISTRY OF INFORMATION COMMUNICATION AND CULTURE

National Visual Arts Gallery 18. Additional Building Construction And Roof

Replacement Projects

a. The National Visual Arts Gallery (NVAG)

implemented the Additional Building Construction

Project through an open tender by design and build

at a cost of RM23.44 million. The building was

57

completed on 22 November 2011 and was

occupied since 12 January 2012. Besides that, the

Roof Replacement Project was implemented at the

Main Building of NVAG to overcome the roof

leakage problem and to reduce its maintenance

costs. The project was implemented through an

open tender by conventional method at a cost of

RM2.74 million. This project was completed and

handed over to NVAG on 30 January 2013. Audit

findings revealed that the overall implementation of

both projects was satisfactory and achieved the

objectives of their construction. However, there

were several weaknesses as follows:

Additional Building Construction Project

i. project could not be completed according to

the original completion date and 2 extensions

of time were granted for a total of 240 days

and was completed 10 months after the

second extension;

ii. the Tender Technical Evaluation Committee

did not complete tender evaluation within 6

months; the Letter of Acceptance (LOA) was

issued one month from the date of approval by

the Ministry for additional provision and the

contract document was signed 5 months after

the prescribed date;

iii. two Variation Orders totalling RM0.52 million

were approved after the contract expired;

retention fund amounting to RM0.59 million

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(50%) was not paid to the contractor after the

Certificate of Practical Completion had been

issued; 6 interim payments totalling RM7.48

million were late between 6 to 155 days after

the 45 days of evaluation and advance

payment of electricity bills amounting to

RM152,105 by NVAG was not recovered from

the contractor even after the contract had

expired; and

iv. installation of the partition wall did not comply

with the specifications in the contract resulting

in late delivery of the project.

Roof Replacement Project

i. the project was completed after an extension

of time of 48 days; and

ii. thickness of aluminium composite panels

installed did not comply with the specifications

stipulated in the contract.

b. It is recommended that NVAG takes the following

actions to enhance the effectiveness of

construction projects management:

i. ensure that project implementation schedule is

adhered to so that projects could be completed

on time;

ii. maintain detailed financial records regarding

the performance of the project development in

order to monitor expenditure more effectively;

and

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iii. ensure that contractors and implementing

agencies comply with the terms and conditions

of the contract in implementing the projects.

MINISTRY OF HIGHER EDUCATION

Department Of Community College Education 19. Management Of Upgrading Community College

a. The concept of having a Community College in

each parliamentary constituency was introduced

through the 2000 Budget Speech by the Minister of

Finance. The Community College will be an

institution that provides training and skills at all

levels and provides opportunities for post-

secondary education prior to the labour market or

further education to a higher level. A total of

RM74.17 million was allocated under the Ninth

Malaysia Plan for upgrading 15 Community

Colleges with a contract sum of RM50.17 million.

The upgrading works involve assembling furniture,

construction of hostels, prayer rooms (surau) and

sport courts as well as installation of close-circuit

television. Audit findings revealed that in general,

the performance of the upgrading works was

satisfactory. However, there were several

weaknesses as follows:

i. 5 projects experienced time overrun between

176 to 491 days involving 3 Extensions of Time

(EOT) approved late between 83 to 320 days

from the original date of completion/expiry date

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of the previous EOT and Certificates of Non-

Completion (CNC) were issued between 67 to

567 days from EOT expiry dates;

ii. Variation Orders (VO) for 5 upgrading projects

were approved late between 43 to 903 days

after the contracts had expired and there was

no VO for work changes that had been made;

iii. improper contract administration where 4

contracts were signed late between 29 to 176

days; Certificates of Practical Completion were

approved late between 70 to 326 days from the

actual completion date causing the defects

liability period to be shorter; and work

insurances for 5 projects were not renewed

resulting in a period of 180 to 490 days not

being covered by insurance;

iv. there was a significant price difference

between acquisition of close-circuit television

systems (CCTV) and installation/maintenance

of CCTV was unsatisfactory;

v. works done were of low quality/inappropriate

and not following the scopes and

specifications; and

vi. monitoring by the Ministry of Higher Education

(Ministry) and the consultant was not

satisfactory.

b. It is recommended that the relevant parties take

the following actions:

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i. the Ministry should be strict and take

immediate action, especially on any problems

in the planning and implementation of projects.

This is to ensure a smooth implementation of

the project with its objectives being achieved

as planned;

ii. the Ministry should ensure that contract

administration is done properly to protect the

Government‟s interest, among others, sign contract within the stipulated period, approve

Certificate of Practical Completion within the

timeframe set and approve Variation Orders

within contract period;

iii. the Ministry should ensure that procurement

rules are complied with to safeguard the

interest of the Government. In this regard, the

Ministry should carry out market research and

rationalize/adjust the price of each item in the

contract so that the price is fair and reasonable

and the Government gets the best value for

money spent;

iv. the Ministry and consultant who had been

appointed as representatives of the

Superintending Officer should monitor and

supervise contractors‟ work progress and ensure that works done by contractors were

appropriate/complete, according to

specifications and of quality. Immediate

corrective actions should be taken on works

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that do not comply with specifications,

inappropriate and of low quality; and

v. the Ministry and Department of Community

Colleges Education should ensure that

weaknesses raised in this report are taken into

consideration in the planning and

implementation of future projects.

MINISTRY OF DEFENCE 20. Construction Project Of Army College Of The

Malaysian Armed Forces, Port Dickson, Negeri Sembilan

a. The construction project for Army College (KTD)

was awarded to Syarikat Sri Tinggi Sdn. Bhd.

(STSB) through direct negotiations using

conventional method. The contract period was from

16 June 2008 until 15 June 2011 (36 months). The

Price Negotiation Meeting of the Ministry of

Defence decided that KTD project should cost

RM175.30 million and it was approved by the

Ministry of Finance in May 2008. The purpose of

KTD establishment was to train Cadet Officer

before being commissioned as a Junior Officer to

be incorporated into its various Army Corps. Audit

findings revealed that the KTD‟s construction project was not satisfactory. There were several

weaknesses in the implementation of the project

where the Government did not gain value for

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money spent. Among the weaknesses identified

were as follows:

i. current cost of the project after the third price

adjustment approval was RM190.90 million

which showed an increase of RM15.60 million

(8.2%) as compared to the initial cost of

RM175.30 million;

ii. additional works without the approval of the

Project Implementing Agencies and

Consultants were claimed by STSB amounting

to RM7.29 million. The works were supplying

loose furniture, installing ICT involving

infrastructure and networking systems and

payment was made through deferred payment;

iii. poor construction finishing quality and

unsuitable design causing inconvenience to

users; and

iv. the as-built drawings were sent late to the

Ministry by SSB even though the Certificate of

Practical Completion (CPC) had been issued

on 14 November 2011.

b. It is recommended that the parties involved take

the following actions:

i. the Ministry should ensure prudent spending in

the implementation of project and ensure that

the financial management is in order;

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ii. the Ministry should establish a Committee of

Inquiry as instructed by the Ministry of Finance

to identify those responsible for the

implementation of additional works which were

outside the scope of the contract and did not

comply with the regulations;

iii. the Ministry should instruct the KTD to list,

supervise and monitor periodically on works

which were incomplete and of poor quality. The

contractor should be instructed to repair all

defects and damages listed before issuing the

Certificate Of Completion Of Making Good

Defects (CMGD);

vi. KTD should maintain a complete and updated

records on Damage Complaints to monitor the

effectiveness of the repairing works by the

contractor, and

v. the Ministry should ensure that weaknesses

raised in this report are taken into

consideration in the planning and

implementation of future projects.

MINISTRY OF DEFENCE 21. Maintenance Of Labuan Air Force Base,

Labuan Federal Territory, Royal Malaysian Air Force

a. The Labuan Air Force Base (LAFB) was in

operation since 1966 covering an area estimated

at 847.57 acres including the Labuan Airport

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which was under the purview of Ministry of

Transport. The base which was managed by the

2nd Division Garrison was responsible in

performing air operation to safeguard the security

of Sabah and Sarawak. The Public Works

Department (PWD) was responsible for

maintaining 151 buildings/facilities by investigating

complaints on defects, preparing the budget

relating to defects and monitoring the works

carried out by contractors. Whereas the Defence

Engineering Service Division (DESD) was

responsible for maintaining 413 buildings/facilities

built by the Ministry of Defence (Ministry) through

monitoring on the maintenance works carried out

by contractors within the contract period. Since

2012, the responsibility centre of LAFB was

allocated a budget amounting of RM1.05 million

for maintenance of building/facilities carried out by

LAFB itself. The Ministry spent RM13.16 million

out of RM13.23 allocated for the maintenance of

LAFB for the period 2010 to 2012. Audit finding

revealed that the management of maintenance

was not satisfactory. Among the weaknesses

identified were as follows:

i. the maintenance on 4,485 defect reports could

not be verified by Audit because the related

information was not submitted;

ii. the five years maintenance plan was not

prepared by LAFB and there was no evidence

to show that meeting on works coordination

66

between DESD and PWD was held as

required;

iii. 11 defects involving 4 main hangar doors were

not yet repaired;

iv. procurement of works amounting to RM1.28

million which was supposed to be done through

the tendering process was split into 4

quotations;

v. Ground Run Up Enclosure Bay was not yet

used even though the upgrading and

renovation works were completed in December

2012;

vi. there was no evidence to show that repairing

works was done on the ceilings at 30 locations

in No. 14 Squadron which were leaking,

broken, spoilt and mouldy; and

vii. 151 units of Membedai quarters were not

occupied because of defects.

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

i. plan properly on maintenance of all assets by

allocating enough fund to conserve the

Government‟s asset;

ii. urgent repair and monitoring should be done on

all reported defects to ensure users satisfaction

and keep proper records on maintenance/

repair work;

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iii. ensure that future constructions are properly

planned to avoid wastage;

iv. take appropriate action on vacant and

damaged quarters; and

v. ensure that officers/non officers from the

Maintenance Unit are given training to upgrade

their skills so that they could perform the

monitoring and maintenance works more

effectively.

MINISTRY OF HOME AFFAIRS 22. Anti-Trafficking In Persons And Anti-

Smuggling Of Migrants Programme

a. Trafficking in persons means all actions involved in

acquiring or maintaining the labour or services of a

person through coercion and includes the act of

recruiting, conveying, transferring, harbouring,

providing or receiving a person for such purposes.

Smuggling of migrants means arranging, facilitating

or organizing, directly or indirectly, a person‟s unlawful entry into or through, or unlawful exit from

any country of which the person is not a citizen or

permanent resident. The Anti-Trafficking in

Persons Act 2007 (AAO) (Act 670) which came into

effect in February 2008 and the National Action

Plan drawn up for the period of 2010 to 2015, was

created as an instrument to combat crime,

particularly that touched on prevention,

rehabilitation and protection of victims of human

68

trafficking including prosecution. This Act was

amended to include a new section dedicated to

tackling crime and smuggling of migrants which

came into effect on 15 November 2010. This

amended Act was known as the Anti-Trafficking in

Persons and Anti-Smuggling of Migrants Act 2007

(Act AOAM 2007). A body known as Council for

Anti-Trafficking in Persons (MAPO) was

established in accordance with the enforcement of

the AAO in February 2008. Following the

amendment of the Act, MAPO is now known as

Council for Anti-Trafficking in Persons and Anti-

Smuggling of Migrants. MAPO is chaired by the

Secretary General of the Ministry of Home Affairs

and members of the Council consist of the

Secretary General/Head of Department from

various Ministries/Departments/Agencies as well

as representatives from several non-government

organizations (NGOs) or other organizations as

provided by the Act. The Minister of Home Affairs

may give MAPO directives which are not

inconsistent with the Act in relation to the functions

and powers of MAPO whereby MAPO shall give

effect to such directives. For 2010, no allocation

was approved for the programme. However, in

2011 the approved budget allocation amounted to

RM15.37 million. Audit review showed that

Malaysia was placed on Tier 2 Watch List based

on the achievement of Human Trafficking Report/

Trafficking in Persons Report (TIP Report) issued

by the U.S. Department of State (JNAS) in 2012.

69

TIP Report achievement was based on the extent

of efforts taken by governments to comply with the

minimum standards of the Trafficking and Violence

Protection Act/Trafficking Victims Protection Act

(TVPA) for the elimination of human trafficking.

Audit findings revealed that the achievement of the

implementation of Anti-Trafficking in Persons and

Anti-Smuggling of Migrants Act 2007 (Act AOAM

2007) was unsatisfactory and should be improved.

Weaknesses observed were as follows:

i. financial planning for the programme was not

carefully identified and the allocations given

were not spent in accordance with the

provisions for which it was provided;

ii. weaknesses in programme coordination and

concerted action between the Committees; and

iii. weaknesses in the coordination and monitoring

of the programme by MAPO.

b. Given that Malaysia is placed under Tier 2 Watch

List in the TIP Report by the U.S States

Department for a third consecutive year, the

Government of Malaysia through MAPO should

emphasize the following:

i. all Ministries/Departments/Agencies and NGOs

directly involved with the programme should

plan carefully and identify the real needs before

allocation of funds is made. Allocations should

70

be spent in accordance with the provisions for

which it was provided. This is to ensure that

planning and implementation of enforcement

activities of the Act are not affected and the

intent of the programme could be achieved

more effectively;

ii. the Office of the Attorney General must

continue to develop and improve legislation

involving regulation affecting the smooth

implementation and enforcement of the Act.

Among them are related to the management of

shelter homes, in particular, provisions relating

to gazetting shelter homes under the NGOs

and NGOs staff as protective officers. Services

under the NGOs in caring and protection of

victims of human trafficking have to be enacted

and extended to reduce the financial burden of

the Government;

iii. the Malaysian Government should be proactive

in taking actions on all recommendations made

by JNAS in the implementation of the AOAM

programme. This includes ensuring the

improvement of the concerted action among

Enforcement Agencies. The Government

through MAPO should ensure that the

Enforcement Committee Meeting is held in

accordance with the resolution and that any

matters/issues arising in respect of the

enforcement by the Enforcement Agencies are

being discussed and resolved; and

71

iv. the Government should consider improving the

infrastructure and increasing the number of

shelter homes in more strategic locations for

the comfort and convenience of victims

management.

Royal Malaysian Police 23. Management On Loss Of Asset

a. Government assets or public goods are properties

belonging to or under the possession and control of

the Government and are classified as Movable

Assets, Immovable Assets, Life Assets and

Intellectual Assets. The Government assets are the

country‟s investment and represent an important

aspect in financial management. Thus, asset

management should be given priority by all

Ministries and Departments. The controlling Officer

of Ministries and Departments shall ensure that the

management of public assets in the aspects of

acceptance, registration, usage, storage,

inspection, maintenance, disposal, losses and

write-offs is implemented in an orderly, efficient

and effective manner. Among the assets managed

by the Royal Malaysian Police (RMP) are firearms,

handcuffs, walkie-talkie and vehicles. Improper and

unsystematic asset management could result in

loss of assets, particularly firearms and handcuffs

that could threaten public safety. The Asset

Management Division, Department of Logistic and

the Investigation Committee Unit/Commission of

72

Enquiry (CE), Department of Management, Bukit

Aman Police Headquarter are responsible for the

management of loss of assets. Based on the

statistic report issued on the loss of assets by the

Asset Management Division, Department of

Logistic, Bukit Aman Police Headquarter for the

period 2010 to 2012, 309 units of assets worth

RM1.33 million were reported missing. The main

categories of asset lost were 156 units of

handcuffs, followed by 44 units of firearms and 29

units of vehicles. Audit findings revealed that the

overall management of loss of assets in Bukit

Aman Police Headquarters and 3 Police

Contingent (IPK) was unsatisfactory. Among the

weaknesses identified were as follows:

i. delay in detecting the loss of assets;

ii. Head of Department delayed in preparing the

Initial Report on the loss of assets;

iii. delay in forming the Investigating Committee

For Loss Of Assets;

iv. Investigating Committee For Loss Of Assets

delayed in preparing the Committee Final

Report;

v. the Secretariat for The Loss And Write-Off

Committee delayed in taking follow-up actions

on reports of assets lost;

vi. delay in taking action by the Police Contingent

upon approval of the write-off by the approving

authority;

73

vii. delay in taking action for the surcharge

process;

viii. secured storage space for assets was not

provided for; and

ix. space for storing assets was limited.

b. To ensure that the management of loss of assets is

implemented properly and efficiently and to

improve the security of police assets, it is

recommended that RMP considers the following

actions:

i. ensure periodic inspections are conducted so

as to detect cases of loss of assets;

ii. ensure compliance to the norm process time

that has been stipulated so that the causes of

assets loss could be identified immediately.

Measures to prevent recurrence of loss of

assets could also be taken, especially involving

the loss of assets under the category of

security such as firearms and handcuffs as it

could threaten public safety;

iii. ensure that surcharge or disciplinary actions

are taken on the police officers/staff who are

responsible for the loss of assets caused by

theft, fraud or negligence, as a preventive

measure to control assets loss cases;

iv. ensure that the appointment of the

Investigating Committee is done at the Police

Contingent (IPK) in accordance with the

74

existing directives and not at the Police District

Office (IPD), to ensure transparent

investigation of assets loss. In IPK Selangor,

the Investigating Committee appointments are

made at the IPD;

v. ensure safe and appropriate storage for assets

to control loss;

vi. ensure compliance with the procedures and

regulations/directives on the management of

assets that could act as preventive measures

for controlling loss of assets;

vii. files/documents on cases of lost assets to be

kept/maintained properly and systematically for

ease of reference;

viii. increase the number of specific courses on the

management of loss of assets to ensure

sufficient training thereby improving the skills

and competencies of officers/staff; and

ix. ensure officers/staff are sufficient and

competent to manage cases on loss of assets.

MINISTRY OF HOME AFFAIRS

National Registration Department of Malaysia 24. Management Of Multipurpose Smart Identity

Card MyKad

a. The National Registration Department of Malaysia

(NRD) is one of the agencies under the Ministry of

Home Affairs. The objectives of NRD are to collect

75

and maintain record of births; deaths; adoptions;

identity cards; marriages/divorces and citizenships

for all residents of Malaysia. The main divisions in

NRD which are responsible for the implementation

of the multipurpose smart identity card MyKad are

the Identity Card Division and the Multipurpose

Smart Identity Card Division. The new structure of

MyKad was launched on 3 January 2012. The

purpose of replacing the old version of MyKad to

the new structure is to enhance the level of

security, improve quality and to obtain ownership of

the Operating System and printer‟s plate. NRD allocated a sum of RM83.67 million (2010),

RM67.31 million (2011) and RM66.14 million

(2012) for operating expenditure. Whereas a sum

of RM0.54 million (2010), RM17.68 million (2011)

and RM9.38 million (2012) was allocated for

development expenditure. Audit findings revealed

that the overall management of multipurpose smart

identity card was satisfactory. However, there were

some weaknesses as follows:

i. non-compliance with quality procedures;

ii. delay in completion of MyKad;

iii. rental payment for unused printers;

iv. weaknesses in managing the disposal of

damaged MyKad; and

v. weaknesses in managing the MyKad reader.

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b. It is recommended that NRD undertakes the following actions:

i. ensure that policies, regulations and the client

charter set are strictly observed;

ii. ensure that the raw cards and MyKad which

have been printed are being stored in a more

suitable and safe place as the materials are of

high value; and

iii. take immediate action by giving notice of

termination to the supplier of printers to avoid

further payment being made.

PART II - MANAGEMENT OF GOVERNMENT

COMPANIES

25. Management On Financial Performance And Supervision Of Government Companies

a. As at February 2013, the Federal Government

invested a total of RM30.74 billion in 60 companies

in which the Federal Government held more than

50% of the paid-up share capital. Audit analysis on

57 out of the 60 Government companies revealed

the following findings:

77

i. overall, the companies‟ total revenue for 2011 recorded RM263.50 billion which showed an

increase of RM5.947 billion (2.3%) compared

to 2010;

ii. in 2011, 37 companies (65.0%) recorded a

profit before tax of RM102.355 billion while 20

companies (35.1%) suffered losses totalling

RM2.154 billion;

iii. an increase in total assets for the year 2011

compared to 2010 which were RM776.849

billion and RM699.770 billion respectively;

iv. an increase in total liabilities of RM379.702

billion in 2011 compared to RM365.002 billion

in 2010;

v. 31 companies (54.4%) showed an increase in

shareholders' funds for the period 2009 to 2011

while the shareholders‟ fund for 9 companies (15.8%) showed a continuous decline and 7

companies (12.3%) recorded a negative in

shareholders‟ fund for 3 consecutive years;

vi. in 2011, 28 companies (49.1%) paid tax to the

Government amounting to RM25.439 billion

which showed a decline of 11.7% compared to

RM29.255 billion in 2010;

vii. as at February 2013, 21 companies (36.8%)

paid dividends amounting to RM29.454 billion

for the financial year 2011. However, 10

companies which recorded profit after tax for 3

consecutive years did not declare/propose any

dividend;

78

viii. 29 companies (50%) applied and were

approved by the Minister of Finance to pay

bonus/allowance/ex-gratia for the year 2011

and 7 out of them recorded losses; and

ix. in addition, there were some weaknesses in

supervision by the Ministry of Finance, among

others, no supervision from the Government

representative sitting as a member of the Board

of Directors, investment portfolio report was not

yet finalized and some companies failed to

achieve their Key Performance Indicators

(KPI).

b. It is recommended that the Minister of Finance

Incorporated and Privatization Division takes the

following actions:

i. urgently finalize the policy and guidelines for

bonus pay out, dividends, roles and

responsibilities of the Government

representatives in the Board and criteria used

in their selection and extension of service; and

ii. ensure that companies provide clear

justifications for failing to achieve their KPI.

26. Khazanah Nasional Berhad

a. Khazanah Nasional Berhad (Khazanah) was

incorporated on 3 September 1993 and currently

has a paid up capital of RM8.443 billion. Khazanah

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was empowered as the Government's strategic

investor focusing on the financial services industry;

media and communication; utilities information

technology; and transportation. Khazanah also

received allocation/grant to implement approved

projects. Audit findings revealed the following:

i. overall, Khazanah's financial performance was

good where the company recorded net profits

for 4 consecutive years with stable cash flows;

ii. generally, Khazanah‟s investment management and monitoring activities were carried out

properly and in accordance with its objectives;

iii. however, there were some weaknesses in the

management of grant received for the

implementation of approved projects;

iv. 2 out of 3 components under the iSHARP‟s project grant which were completed were not

handed over to the Government agencies

whereas the component for the Sea Water

Intake System under the iSHARP project in

Setiu, Terengganu failed to be completed by

the appointed contractor; and

v. there were some weaknesses in financial

management such as membership of Audit and

Risk Committee was not consistent with the

regulations; no criteria in determining the

method of procurement; delay in recovery of

cash advances and poor asset management.

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b. It is recommended that responsible parties take the

following actions:

i. Khazanah management should standardize the

management and monitoring of grants by

having discussion with the Government, set

goals to be achieved and ensure that the

contractor complies with the terms and

conditions of the contract;

ii. the Board of Directors may amend the Audit

and Risk Committee Charter in order to be

consistent with the best practices as suggested

in the Malaysian Code on Corporate

Governance;

iii. Khazanah management should review and

revise the existing financial management

procedures such as procurement and

expenditure policies; and

iv. Khazanah management must also ensure that

all assets purchased by the company are fully

utilised as justified during its procurement.

27. Malaysia Debt Ventures Berhad

a. Malaysia Debt Ventures Berhad (MDV), wholly

owned by the Ministry of Finance Incorporated

(MoF) was established on 23 April 2002 with a paid

up capital of RM100 million. An increase in paid up

capital of RM150 million to the total amount of

RM250 million was approved for MDV in 2010 by

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MoF. MDV with 99% of its shares owned by MoF

and the remaining 1% by the Commissioner of

Lands and Mines was mandated as the premier

innovative financier and development facilitator of

the ICT, Biotechnology and Green Technology in

Malaysia. Audit findings revealed that overall, MDV

succeeded in its lending and financing role as

given by the mandate. MDV's financial

performance continued to improve as it recorded

an increase in total profit of RM13.91 million in

2010, RM15.66 million in 2011 and RM22.46

million in 2012 despite making a loss of RM58.21

million in 2009. MDV‟s cash flow was also positive for the last 4 consecutive years. The performance

of MDV‟s activities were satisfactory due to the increase of annual loan disbursements and

receipts of loan repayment. However, there were

weaknesses in the loan management as follows:

i. management of the overall activities from the

loan application up to the collection of loan

repayment was satisfactory. However, there

were drawbacks in the aspects of loan

approval, Non-Performing Loans (NPLs) and

loan monitoring; and

ii. Computer Information System Project (ICFS)

was not utilised although the system was

launched in June 2011.

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b. To ensure a more efficient and effective role as a

financial institution providing loans/financing, it is

recommended that the management of MDV

considers the following:

i. set additional conditions if the loan application

does not meet the basic criteria for approval of

loans to safeguard the interest of MDV in the

future;

ii. improve the monitoring and supervision to

ensure that annual reviews are performed on

all loans/financing in accordance with the credit

policy of MDV;

iii. closely monitor the data re-migration process to

ensure that ICFS system could be utilised

optimally in the near future. In addition, the

management should include a clause through a

supplementary agreement regarding training

under the Application Management Services if

it is not fully implemented within the period of

the contract;

iv. establish additional control mechanism for

companies that have more than one loan and

urgently study the causes of loans turning into

NPLs in a very short period. This is to ensure

that the loan/financing is closely monitored and

early action could be taken accordingly;

v. record MDV‟s name as the beneficiary in the insurance policy to ensure that the interest of

MDV is safeguarded for any claim in the event

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of loss/damage on assets and equipment

financed;

vi. provide specific procedures for the approval of

loans for projects undertaken abroad; and

vii. review the loan procedure to take into account

the element of project cost evaluation.

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POSTSCRIPT

In general, Ministries/Departments/Government

Companies had good plans to implement programmes/

activities/projects. However, in terms of implementation,

there were still several weaknesses that need to 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 are 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

activities 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 should carry out procurement and

performance audits on the management of

programmes/activities/projects to ensure that they

are implemented efficiently, economically and the

stated objectives are achieved.

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b. Based on Audit conducted, there were several

weaknesses in the implementation of

programmes/activities/projects due to lack of

monitoring/supervision by responsible 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 value for money for the

expenditure incurred. The objectives of the

programmes/activities/projects were also not fully

achieved and did not give any impact on targeted

groups. In this regard, it is recommended that:

i. the implementation of the Government design

and build projects should be reviewed as they

require higher costs compared to conventional

projects. As such, it is recommended that only

complex projects which require specific

expertise are allowed to use the design and

build method. The Ministry of Finance is

required to issue guidelines on the

implementation of design and build projects.

Other than that, in order to safeguard the

Government‟s interest, consultants of design and build projects need to be appointed by the

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Government. In addition, the Ministry of

Finance should issue financial instructions

allowing agencies to include a clause in the

tender document to enable the Government to

remove items that are too expensive compared

to market price and allowing them to be

acquired separately;

ii. 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 the project is implemented

according to schedule and the Government

achieves value for money;

iii. integrated planning among agencies 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 as well as local

authorities need to be consulted before

projects are implemented so that all basic

facilities could be provided and projects could

run smoothly;

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iv. the Ministries/Departments need to comply

with Guidelines for Planning and Building

Regulations issued by the Standards and Cost

Committee for the reference of the National

Development Planning Committee so that

buildings are built according to standard and

cost set;

v. in order to curb the problem of failed

Government programmes/activities/projects

undertaken by incapable contractors either in

terms of financial or expertise, it is

recommended that companies that wish to

participate in the Government‟s procurement should be requested to submit information on

paid-up capital and their financial position for

the last three years and a list of past and

present Government/private contracts involved.

Companies are also requested to inform their

experience in the field that they wish to offer.

All information submitted should be supported

by the companies‟ declaration. This information

should be taken into consideration during the

selection of contractors;

vi. with regard to the issue of equipment procured

but not utilised whether due to incomplete

building/unsuitable equipment/purchase of

equipment in excess/not required, it is

recommended the following:

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- view of the users must be taken into

account when preparing the contract

specifications relating to equipment

procurement.

- procurement of equipment should be

coordinated with the progress of the

building construction. For this purpose, the

schedule of equipment supplied should be

done beforehand to prevent unused

equipment from being exposed to damage

and theft as well as the expiration of its

warranty period before being utilised;

vii. 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;

viii. 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; and

ix. stern action should also be taken against

consultants who failed to discharge their

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responsibilities in monitoring/supervising

programmes/activities/projects such as

imposing penalty/blacklisting them from other

Government projects. In this regard, the

agreement with consultants should include

provisions relating to action that maybe

imposed against them for failing to perform

their duties as specified.

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 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 25 July 2013