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NATIONAL AUDIT DEPARTMENT MALAYSIA

ON THE AUDIT OF ACTIVITIES OF FEDERAL STATUTORY BODIES

AND THE MANAGEMENT OF SUBSIDIARY COMPANIES

AUDITORGENERALS REPO RT

2013SERIES 1

(SYNOPSIS)

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NATIONAL AUDIT DEPARTMENT MALAYSIA

AUDITORGENERALS REPO RT

2013

ON THE AUDIT OF ACTIVITIES OF FEDERAL STATUTORY BODIES

AND THE MANAGEMENT OF SUBSIDIARY COMPANIES

SERIES 1

(SYNOPSIS)

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CONTENT

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CONTENT Page

PREFACE vi

INTRODUCTION xv

SYNOPSIS 1

PART I

MANAGEMENT OF FEDERAL STATUTORY BODIES ACTIVITIES

1. INTRODUCTION 1

SULTAN IDRIS UNIVERSITY OF EDUCATION 1

2. Management On The Construction Of Sultan Azlan Shah Campus

THE NATIONAL HIGHER EDUCATION FUND CORPORATION 3

3. Management Of Loan/Financing Education System

FEDERAL ISLAMIC RELIGIOUS COUNCIL 4

4. Management Of Food Supply In Federal Islamic Religious Council Education

And Protection Institutions

INTTELLECTUAL PROPERTY CORPORATION OF MALAYSIA 5

5. Management of Intellectual Property

EMPLOYEES PROVIDENT FUND 6

6. Management Of Overseas Real Estate Investment

MALAYSIA DEPOSIT INSURANCE CORPORATION 7

7. Management Of Procurement

PART II

MANAGEMENT OF FEDERAL STATUTORY BODIES SUBSIDIARY COMPANIES

8. INTRODUCTION 8

MANAGEMENT OF RISDA FLEET SDN. BERHAD 8

9. Subsidiary Of Rubber Industry Smallholders Development Authority

MANAGEMENT OF F.I.T CENTER SDN. BERHAD 10

10. Subsidiary Of Council Of Trust For The People

MANAGEMENT OF MAJUIKAN FORWARDING SDN. BERHAD 11

11. Subsidiary Of Fisheries Development Authority of Malaysia

POSTSCRIPT 15

iii

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PREFACE

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vi

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

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

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

Government companies and to submit his Report to His Majesty, Seri Paduka Baginda

Yang di-Pertuan Agong for his Royal assent to table the Report in Parliament. To fulfill

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

follows:

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

the Federal Statutory Bodies for the year concerned show a true and fair view and itsaccounting records have been properly maintained and updated accordingly.

1.2 Financial Management Auditsto evaluate whether the financial management

of the Federal Statutory Bodies is in accordance with relevant financial laws and

regulations.

1.3 Performance Audits to evaluate whether the activities of the Federal

Statutory Bodies have been implemented efficiently, economically and achieved its

desired objectives.

1.4 Management Audits Of Federal Government Companies to evaluate

whether the subsidiary companies of the Federal Statutory Bodies have been

managed properly.

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

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

to implement 4 initiatives namely tabling of the Auditor Generals Report in every

Parliament session. The objective of tabling my Report on the Activities of FederalStatutory Bodies and Management of Subsidiary Companies in each Parliament session

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

people to enable quick corrective actions to be taken on issues observed in order to

enhance the public perception positively. I hope the report on the Activities of Federal

Statutory Bodies and Management of Subsidiary Companies Year 2013 Series 1 for the

first Parliament session of 2014 will become the basis to rectify all weaknesses in the

effort to mitigate continuous abuse of power, wastages and excessive spending as well

as to enhance the integrity and accountability for public money.

PREFACE

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vii

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

evaluate whether the activities of Federal Statutory Bodies have been managed

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

activities namely procurement, construction, management of investment, management

of assets and loans. This Report contains issues observed from the audit carried out on

6 projects/activities. Generally, the weaknesses reported in the Auditors General Reportinclude improper payments; works/supplies that did not adhere to the specifications or of

inferior quality; unreasonable delays; wastages, weaknesses in the management of

computer system; weaknesses in the management of assets and weaknesses in the

management of loans. These weaknesses were caused by negligence in complying with

Government regulations and procedures; lack of meticulous planning on

projects/activities in determining the scope and specifications of tenders; lack of close

and effective monitoring on the works of contractors/consultants/suppliers; agencies

information system were incomplete and not updated.

4. In addition, subsidiary companies of Federal Statutory Bodies with more than 50%

of the equity structure owned by Federal Statutory Bodies are also being audited by the

National Audit Department. The Audit was conducted to evaluate whether the

management of activities, corporate governance and financial management have been

carried out effectively, economically and in accordance with its objectives. Analyses

were also carried out on the financial performance of subsidiary companies for the

financial years 2008 until 2012. Issues observed from the audit on the 3 subsidiary

companies were reported in this Report for the first Parliament session of 2014.

5. As in prior years, series of engagement and exit conference with parties related to

the audit of activities of Federal Statutory Bodies and the management of subsidiary

companies were held to discuss the issues to be reported in the Auditor Generals

Report. Secretary Generals, Chief Executive Officers and the Ministry of Finance were

duly informed on the issues to be reported for their verification and the feedback were

included in this Report. Beginning the year 2014, a copy of this Report has been sent to

the Minister, Audit Committee Chairman of the agencies and Head of Internal Audit

Department of the respective ministries and agencies to ensure that they are aware of

the issues to be reported as well as to ensure immediate actions were taken. In this

Auditor Generals Report, a total of 24 recommendations were issued for corrective or

monitoring actions to prevent recurrence of the weaknesses the culture of CTI-PCI

acronyms which are Fast, Accurate and Integrity; and Productive, Creative and

Innovative. According to the Governmentsaspiration in the transformation process to

address the weaknesses should be practised by all Federal Statutory Bodies to improve

the quality of work.

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viii

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

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

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

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

(TAN SRI DATO SETIA HAJI AMBRIN BIN BUANG)

Auditor General Malaysia

Putrajaya

12 February 2014

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INTRODUCTION

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1. According to the Statutory Bodies (Accounts and Annual Reports) Act 1980 (Act240), a Statutory Body is an association which is incorporated in accordance with

federal legislation. A statutory body is a body corporate or an agency of the Government

of Malaysia that is incorporated by its own incorporation Act for the purpose of the

Federal Government but does not include a local authority or a corporation that is

incorporated under the Companies Act 1965.

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

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

professional and effective manner. Every statutory body is subjected to their ownincorporation Act or subsidiary incorporation legislation which sets out the purpose and

specific powers of autonomy and it shall function according to its objectives. However, a

Board of Directors should be established to implement its functions, administration,

management and activities. The Board of Directors is authorised to make decisions on

administration and management of federal statutory bodies. The Board of Directors shall

consist of members such as a representative from the Ministry of Finance, a

representative from the Ministry, government officer and corporate members who have

relevant expertise in the statutory bodys activities. The appointment and termination of

board members is under the jurisdiction of the Minister. Each federal statutory body isplaced under a Minister in charge as required by the incorporation legislation or by the

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

statutory body includes the power to borrow, lend, invest, set up a subsidiary company,

managing funds and trust accounts, and implementing programmes and activities

subject to its own legislation. A number of federal statutory bodies are dependent on

government grants to carry out their activities while others finance their operations with

their own funds.

3. In terms of financial management, the federal statutory body may have its ownfinancial regulations, systems and procedures and its own accounting policies which is

in accordance with generally accepted accounting principles. All federal statutory bodies

shall prepare financial statements on an accrual basis for each financial year. According

to the Statutory Bodies (Accounts and Annual Reports) Act 1980 (Act 240), the federal

statutory bodies shall, within six months after the end of the financial year submit the

financial statements to the Auditor General for audit. The said Act also provides that the

audit of the financial statements of the federal statutory body is subjected to the Audit

Act 1957. The federal statutory body shall, in respect of each financial year and within

one month after the receipt of its audited financial statements and the Auditor GeneralsReport, submit to the Minister together with a report of its activities. The Minister shall as

INTRODUCTION

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soon as possible upon receiving the audited financial statements cause it to be tabled in

Parliament.

4. As at the end of year 2013, a total of 127 federal statutory bodies and a financial

institution registered under the Co-Operative Societies Act were established to perform

such functions as stated in its incorporation.

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SYNOPSIS

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1

PART I

MANAGEMENT OF FEDERAL STATUTORY BODIES ACTIVITIES

INTRODUCTION

1. The National Audit Department is required to audit federal statutory bodies

activities to ascertain that they were implemented efficiently, effectively and prudently

in line with prescribed objectives. In the year 2013, a total of 6 activities were selected

for audit and to be tabled in the first Parliament session of 2014.

2. SULTAN IDRIS UNIVERSITY OF EDUCATION

- Management On The Construction Of Sultan Azlan Shah Campus

a. Sultan Idris University of Education (UPSI) has 2 campuses namely Sultan

Abdul Jalil Shah Campus (SAJSC) and the Sultan Azlan Shah Campus

(SASC). The construction of SASC covers an area of 800 acres in Proton

City, Tanjung Malim, Perak. The Economic Planning Unit (EPU) had

approved an allocation of RM459.58 million to UPSI for the construction ofSASC project. The allocation was distributed to Package 1 which comprises

earthworks and infrastructure amounting to RM36.59 million and Package 2

which comprises building works amounting to RM422.99 million. This project

based on design and build, had been awarded to SAKATA Group Sdn.

Berhad through direct negotiations by the Ministry of Finance. Package 1

commenced on 1 March 2007 and completed on 28 April 2008 at a cost of

RM34.81 million. Meanwhile Package 2 commenced on 1 August 2008 and

was completed on 31 January 2012 at a total cost of RM403.80 million.

b. An Audit carried out between October and November 2013 revealed that

generally, the management of the construction project of SASC was not

satisfactory. Among the weaknesses were as follows:

The Quality of Construction

i. The cooling towers were not installed properly thereby resulting in the

bigger cooling tower not practical for use as it was installed on a higher

level than the smaller cooling tower. Water from the bigger cooling tower

then flows towards the smaller cooling tower and spilled onto the floor.

SYNOPSIS

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2

Hence, the bigger cooling tower is not utilised to avoid wastage of water

which was estimated at approximately RM300 per day.

ii. The installation of the public address system was not practical; small

meeting rooms have many microphones when there is no necessity.

iii. Condensation occurred on the walls of the building as the contractor

failed to coordinate the temperature on the interior and exterior on 4blocks of the building.This condensation has caused damp and mouldy

walls outside the rooms and the iron edging of the wall appeared rusty.

iv. The water proofing materials used in 2 blocks were not functioning

thereby damaged the plaster ceiling. Water continuously leaks into Plant

House 1 which ledto the formation of stalactites structures in the interior

part of the building.

v. Air terminals which act as lightning arresters were not installed on the

roof of Plant House 1 and SASC Mosque. Therefore, UPSI have to adjust

this amount in the final account.vi. The Building Automation System (BAS) and the Supervisory Control And

Data Acquisition (SCADA) valued at RM3.61 million were not fully utilised

as there were defaults. The BAS system could not function (offline) on

the monitor control for the Fire Alarm module in all blocks, Chiller in Plant

House 7 and Air Handling Unit (AHU) at the Experimental Theatre, Main

Hall and Centre of Lecture Hall. The SCADA system could not control the

electrical system such as corridor lighting in the Experimental Theatre

and Student Center from the ICT Control Centre.

vii. The Certificate for Occupation has not been issued as at 31 December2013 even though the Certificate of Practical Completion was issued on

31 January 2012. However, the building has been occupied since

February 2012.

viii. There were 58 defects which have yet to be repaired by the contractor as

at 31 December 2013 even though the Defects Liability Period will end on

31 January 2014.

c. Audit recommended that UPSI and Public Works Department (PWD) should

take the following actions:

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

the bigger cooling tower so that it can be utilised according to

specifications. PWD should also ensure that all cooling towers can be

used effectively and optimally.

ii. PWD and UPSI should ensure that the BAS and SCADA systems can

function well or otherwise UPSI should recover from the contractor for

both systems.

iii. PWD as the Project Director should carry out a thorough inspection onthe buildings and equipment and ensure that all defects and construction

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works are rectified immediately by the contractor before the Defects

Liability Period ends.

iv. PWD and UPSI should perform continuous monitoring to ensure the

quality of works carried out.

v. PWD should report on the incompetence of the contractor and

consultants to the relevant professional bodies to ensure disciplinaryactions taken against them.

3. NATIONAL HIGHER EDUCATION FUND CORPORATION

- The Management Of Loan/Financing Education System

a. The National Higher Education Fund Corporation (PTPTN) was established

under the National Higher Education Fund Corporation 1997 (Act 566) and

has commenced operations on 1 November 1997. The objective of PTPTN is

to ensure efficient funding to eligible students to pursue their education atinstitutions of higher learning in line with the government's aspiration to

guarantee no student is deprived of higher education due to financial

constraints. As at November 2013, a total of RM53.23 billion education funds

have been approved to 2.3 million loan applicants. PTPTN has begun to use

the Education Loan Management System (ELMAS) which was developed in

the year 2000 with Fastrac query module in managing students and

education loans. The system has been upgraded from time to time since

2003 by Paradigm Systems Berhad to meet the government sand PTPTNs

current policy. In the year 2010, Islamic Education Loan ManagementSystem(ELMAS-i) has been developed under the concept of Islamic Ujrah

aligned with PTPTN Circular No. 2 of 2008, Implementation of the Education

Funding with the Imposition of 1% Ujrah Per Year or Wages for Flat Rate.

The total cost of the systems since developed in 2003 was RM22.70 million.

b. An Audit carried out between April and July 2013 revealed that generally, the

management of Loan/Financing Education Systems was not satisfactory.

Among the weaknesses were as follows:

i. The performance of ELMAS system was not comprehensive as certain

aspects such as applications for extension and deferment of repayments

as well as exemption of loan repayments were done off the ELMAS and

ELMAS-i systems that is through Sistem Pengurusan Kutipan Balik (e-

UPKB) which is not interface with ELMAS and ELMAS-i.

ii. Weak logical access control for ELMAS and ELMAS-i due to the absence

of security features.

iii. The agreement on the rental of personal computers and laptops did not

include any clause for any rescheduling rental period and also return of

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equipment if not used. This had resulted in 104 units of personal

computers which had been distributed but not used and kept in the store.

iv. There was no Service Level Agreement from suppliers to guarantee the

WAN network service level.

v. There was no Service Level Guarantee to ensure repayment or

imposition of penalty should the supplier fail to provide such services.vi. Data cleansing on the ELMAS and ELMAS-i systems have not fully been

implemented.

vii. Training on disaster recovery simulation has yet to be implemented.

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

i. PTPTN should redevelop the User Identification Module to comply with

the general security features and the Information Technology Directive of

2007. Among them is the creation of a Matrix Access Control to ensure adetail user access which can differentiate access based on individual

task and also to establish the use of the Access Application Form.

ii. PTPTN should carry out data cleansing systematically to ensure data

integrity in the ELMAS and ELMAS-i systems.

iii. PTPTN should implement trainings on the disaster recovery simulation

regularly to ensure disaster recovery plans are effective.

4. FEDERAL ISLAMIC RELIGIOUS COUNCIL

- Management Of Food Supply In The Federal Islamic Religious CouncilEducation And Protection Institutions

a. The Federal Islamic Religious Council (FIRC) was established on 1 February

1974 through the Administration of Hukum Syarak Enactment of Selangor.

FIRC was incorporated in July 1993 by the Administration of Islamic Law

(Federal Territories) 1993 (Act 505). Under Section 4 of Act 505, FIRC was

established to advise the Yang Dipertuan Agong on matters relating to Islam.

It also formulates policies and serves as the main body which monitor the

development and growth of Islam in the Federal Territories of Kuala Lumpur,Putrajaya and Labuan. FIRC is also responsible to implement human capital

development by providing shelter and educational facilities to Muslim

students who could not afford them.

b. An Audit carried out between August and October 2013 revealed that the

management of food supply in the Education and Protection Institutions of

FIRC was not satisfactory. Among the weaknesses were as follows:

i. Supply of raw materials was not according to the specifications in theagreement and the preparation of cooked food in Darul Kifayah Complex

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and SMISTA was not satisfactory. A fine of 10% was not imposed on the

contractor who supplied poor quality food and not in accordance with the

specifications.

ii. There were differences of 113,978 number of meals ordered amounting

to RM189,512 as compared to the actual number of residents in Darul

Kifayah Complex.iii. There was no supplementary agreement between Kembara Cekal

Enterprise and FIRC for the supply of food to students in SMISTA.

iv. There were no regular monitoring on the preparation of cooked food in

the FIRC Education and Protection Institutions to ensure the quality of

food.

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

i. FIRC should perform regular supervision and monitoring to ensure thatthe food supply management is carried out efficiently and comply with

established guidelines.

ii. FIRC should ensure that the food supply is adequate to meet the needs

of students and residents.

iii. FIRC should prepare a supplementary agreement with the supplier in

order to safeguard the interests of FIRC in the event of non-compliance

relating to the food supply services.

iv. FIRC should ensure that the hostel supervisor carry out inspection and

verification on the quantity and quality of raw materials received in linewith the specifications stipulated in the agreement. Besides that, the

principal of the institutions should conduct spot checks regularly to

ensure the food supply services are well managed.

v. A Food Supply Performance Report should be prepared and reviewed

monthly before payment is made. If the supply is not satisfactory, FIRC

should impose a penalty of 10% from the total cost or terminate the

services as stipulated in the agreement.

5. INTELLECTUAL PROPERTY CORPORATION OF MALAYSIA- Management of Intellectual Property

a. The Intellectual Property Corporation of Malaysia (MyIPO) was established to

register intellectual properties such as trade mark, patent, industrial design,

copyright and geographical indication and layout-design of an integrated

circuit. The functions of MyIPO are to monitor the implementation of all

matters and regulations related to intellectual property, to render

management services, collection and enforce payment of fees or any other

charges provided under intellectual property regulations as well as tosafeguard the interests of the country in any international agreements or

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conventions of which Malaysia is a member. An Audit carried out between

August and October 2013 revealed that generally, the management of

intellectual property by MyIPO was good. The details were as follows:

i. The performance on the registration for intellectual property applications

from the years 2011 to 2013 could not be evaluated as the duration toregister an intellectual property may be up to 26 months.

ii. However, the performance prior to the year 2011 based on the number of

applications with complete supporting documents received was 98.8%

(trade mark), 80.6% (patent) and 100% (industrial design). A total of

15,989 applications are been reviewed.

Generally, with the use of technology, the management of intellectual

property has been implemented efficiently and systematic as compared to

the year 2006 where no time frame was stated for the registration process.As at December 2013, the overall performance on intellectual property

registration based on the applications with complete supporting documents

until year 2010 was 96.2%.

6. EMPLOYEES PROVIDENT FUND

- Management Of Overseas Real Estate Investment

a. The Employees Provident Fund Act 1991 (Act 452) under section 26 (2) (e)

allows EPF to invest outside Malaysia with written permission from theMinister of Finance. Hence, EPF has chosen to invest in real estate and

infrastructure as a component to its annual strategic asset allocation in order

to optimise the returns for the purpose of annual dividend payments. EPF

has invested abroad namely in the United Kingdom, Australia, Singapore and

Europe either through its subsidiaries or through a joint venture.

b. An Audit carried out between August and November 2013 revealed that the

management of EPFs real estate and infrastructure investment in Australia

was well managed. Details on the management of real estate investmentwere as follows:

i. EPF's investment for the year 2013 amounted to RM586.66 billion of

which RM14.36 billion consists of investments in real estate and

infrastructure.

ii. EPF recorded a gross investment income amounting to RM35 billion in

2013 as compared to RM31.02 billion in the year 2012 and RM27.23

billion in the year 2011.

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iii. EPFsreturn on investment from real estate and infrastructure amounted

to RM1.14 billion in 2013, an achievement of 122.5% above the targeted

annual return of RM930 million.

c. The investment in real estate and infrastructure in the year 2013 has

increased by 10% to RM14.36 billion as compared to RM13.05 billion in2012. Whereas gross income from investment has increased by 91.1% to

RM1.14 billion in the year 2013 as compared to RM596 million in 2012.

Generally, the management of real estate and infrastructure investment in

Australia is well managed and obtained profitable returns as well achieved

the investment objectives.

7. MALAYSIA DEPOSIT INSURANCE CORPORATION

- Management Of Procurement

a. The Malaysia Deposit Insurance Corporation (MDIC) insures depositors and

protects takaful certificate and insurance policy owners in the event of failure

of institutional members up to limits set out in the MDIC Act. The Corporation

is also mandated to provide incentives for sound risk management in the

financial system, as well as to promote or contribute to the stability of the

financial system. An Audit carried out between May and August 2013

revealed that generally, the management of procurement needs some

improvements. Among the improvements were as follows:

i. 4 Supplemental Letters were issued to revise the agreed scope of work

and extension of time to complete the project. The revision of work scope

and extension of time have resulted in the escalation of the original

project cost by 99.6% or RM2.33 million from the original contract sum of

RM2.34 million. This increase led to the overall project cost to be RM4.67

million and the project completion date to be extended for an additional

700 days from 30 April 2012 to 31 March 2014. However, this increase

was within the approved budget.

ii. Projects were delayed between 28 to 85 days from the date stipulated inthe agreements due to changes in the contract specifications and scope

of work. No approval were obtained for the extension of time.

iii. Inconsistencies in tender procedures for procurement whereby 3 or 43%

of 7 confidentiality agreements chosen as audit samples were not

stamped.

iv. Checklist for tender procedures was not prepared as a reference and

guide for all departments. In addition, the update of all project files for

tender procurement was not performed in a standardised manner.

b. Audit recommended that MDIC should take the following actions:

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i. MDIC should prepare detailed plans for procurement to ensure that the

projects will be implemented effectively and efficiently.

ii. MDIC should comply with the approved tender procedures for the

purpose of consistency and coordination.

iii. MDIC should establish checklist for tender procedures as a guide andreference for all departments. In addition, all procurement files should be

updated regularly and standardised.

PART II

MANAGEMENT OF FEDERAL STATUTORY BODIES SUBSIDIARY COMPANIES

INTRODUCTION

8. The Audit Order (Accounts of Companies) 2013 was gazetted to enable theAuditor General to conduct audits on subsidiary companies of the government. Three

subsidiary companies of the federal statutory bodies were selected for audit and to be

tabled in the first Parliament session of 2014.

9. MANAGEMENT OF RISDA FLEET SDN. BERHAD

(A Subsidiary Of The Rubber Industry Smallholders Development Authority)

a. RISDA Fleet Sdn. Berhad (RISDA Fleet) was established on 18 September

1996 under the Companies Act 1965 by the name of SHDC Wood Sdn.Berhad and changed its name to RISDA Fleet on 2 January 2002 as a Joint

Venture owned by Smallholders Development Corporation Sdn. Berhad

(SHDC) and National Rubber Smallholders Cooperative Berhad (NARSCO)

with an equity share of 70% and 30% respectively. RISDA Fleet has an

authorised capital of RM0.50 million and a paid-up capital of RM0.30 million.

The main activities of RISDA Fleet are to provide the management and

services on transportation for soil, seed, fertilizer, crude palm oil; to operate

vehicle service workshop and to act as an agent for transportation

companies such as shipping, rail and ferry.

b. An Audit carried out in March 2013 revealed that the corporate governance

and financial management of RISDA Fleet were good while the management

of RISDA Fleet activities was satisfactory. However, in the years 2010 and

2011, the financial performance was not satisfactory due to significant losses

particularly in 2011 amounting to RM3.38 million. As at 31 December 2011

and 2012, the accumulated losses had exceeded the companys paid-up

capital of RM0.30 million. However, in the year 2012 the financial

performance has improved, recording a profit thereby reducing the

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accumulated losses from RM1.45 million to RM0.81 million. Among the

weaknesses were as follows:

i. The operator licences for 47 lorries under SHDC have not been approved

by the Land Public Transport Commission (SPAD) even though the

transportation services have been provided. The period for theconversion of the existing licence to operator licence as determined by

SPAD has expired on 30 September 2012.

ii. The existing number of lorries were not sufficient as the lorries were in

bad condition and uneconomical to use. There was also capital

constraints. As a result, RISDA Fleet has to rely on the appointed

transportation panel.

iii. RISDA Fleet was penalised for delays in the delivery of fertilizers to

factories. In year 2012, RISDA Fleet paid a penalty of RM207,636 for late

deliveries.iv. No identification was allocated to assets and annual asset verification

was not carried out from years 2010 until March 2013.

c. Audit recommended the following actions to enhance the companys

performance:

i. RISDA Fleet should increase the annual profit or reduce the operating

expenditures to strengthen the companys financial position thereby

reducing the accumulated losses. RISDA Fleet should also enhanceassets utilisation to generate sustainable profits in the future.

ii. RISDA Fleet should ensure that only lorries with valid operator licences

are permitted to operate according to SPAD Act.

iii. RISDA Fleet and Rubber Industry Smallholders Development Authority

(RISDA) should discuss on the management of RISDA Fleet lorries

especially those owned by SHDC and NARSCO. They should also

resolve the problem on insufficient fleet of lorries and consider capital

injection in order to improve the services so as to compete in the

competitive market.iv. RISDA Fleet and RISDA should review the delivery and transportation

processes to safeguard the interests of both parties. RISDA Fleet should

also improve the management of its transportation services and comply

with the terms of agreement to avoid the payment of penalties.

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10. MANAGEMENT OF F.I.T CENTER SDN. BERHAD

(A Subsidiary Of The Council Of Trust For The People)

a. F.I.T Center Sdn. Berhad (FITEC) was incorporated under the CompaniesAct 1965 on 28 January 1994. FITEC is a wholly owned subsidiary of the

Council Of Trust For The People (MARA), a statutory body under the Ministry

Of Rural And Regional Development (KKLW) with an authorised capital of

RM10 million and a paid-up capital of RM5.67 million. The function of FITEC

is to act as an implementing agency to enhance the development of

Bumiputera furniture industry in Malaysia through training in furniture industry

and furniture trading. The vision of FITEC is to empower Bumiputera

entrepreneurship by providing marketing, training and development activities

for the commercial and defence sectors.

b. An Audit carried out between March and May 2013 revealed that corporate

governance and financial management were good; management of activities

was satisfactory whereas financial performance was not satisfactory. In

years 2010 and 2011, FITEC suffered losses after tax amounting to RM0.28

million and RM0.65 million respectively. The losses were due to the

adjustment of annual grant and also losses from the programmes on My

Kitchen Vendor. However, in year 2012, FITEC recorded profit after tax

amounting to RM0.16 million due to increase in operational income. Amongthe weaknesses were as follows:

i. The number of training programmes and participants only achieved

62.1% and 59.7% of their targets in the year 2010 were 62.1% and

59.7% whereas in the year 2012, the achievement was 81.2% and 70.2%

respectively.

ii. FITEC did not establish a mechanism to evaluate the effectiveness of the

training programmes.

iii. The expenditure incurred for the programme on Shipping FurnitureVendor did not comply with the terms of agreement of the Ministry of

International Trade and Industry (MITI). The participation of FITEC in an

exhibition held in Italy in April 2011 was only approved by the Board of

Directors in October 2012.

iv. The expenditures incurred for the programme on My Kitchen Vendor did

not meet the terms of agreement of MITI which resulted in losses

amounting to RM2.04 million from the years 2011 until October 2013.

v. The performance report on the activities and expenditures for the Vendor

Development programme was not submitted to MITI periodically.

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vi. No feasibility studies were carried out on the business prospect of

projects, such as My Kitchen Program through My Kitchen Outlet and

Exhibition and Furniture Sales in Rumah Melaka to determine the viability

of the projects. As a result, FITEC suffered losses amounting to RM2.23

million and the outlet and exhibition centre had to be closed.

c. Audit recommended that FITEC and MARA should take the following actions:

i. MARA should monitor the activities carried out by FITEC in order to

increase the training capacity and number of Bumiputera entrepreneurs.

ii. FITEC should immediately resolve the rental arrears for outlets located in

Sungai Buloh, Rawang, Shah Alam and Klang to avoid greater loss.

iii. FITEC should conduct feasibility study on potential business prospects

before any decision is made to undertake the project.

11. MANAGEMENT OF MAJUIKAN FORWARDING SDN. BERHAD

(A Subsidiary Of The Fisheries Development Authority of Malaysia)

a. Majuikan Forwarding Sdn. Berhad (MFSB) was incorporated under the

Companies Act 1965 on 29 November 1994 and is a subsidiary of Majuikan

Sdn. Berhad (MSB). MSB is a wholly owned subsidiary of the Fisheries

Development Authority of Malaysia (LKIM) and has 100% interest in MFSB.

MFSB was established with an authorised capital of RM500,000 and a paid-

up capital of RM100,000. The main services of MFSB are as customsclearance agent, provide licensed public warehouse, transportation and

delivery of goods.

b. An Audit carried out in March 2013 revealed that the management of MFSB

was not satisfactory because the financial performance in the years 2008 to

2012 revealed losses after tax except in the year 2009. MFSBsdebt ratio

exceeded 100% indicating that the company is highly reliant on external

debts. Among the weaknesses were as follows:

i. MFSB incurred losses after tax for 3 consecutive years from years 2010

to 2012. As at 31 December 2012, the accumulated losses were

RM412,250 which exceeded the paid up capital of RM100,000.

ii. Fixed operating costs increased from RM12,000 in the year 2007 to

RM361,656 in the year 2012. The increase was due to rental of the

fantuzzi machine for warehouse operations which commenced in the

year 2009 and a fixed loan repayment in the year 2011.

iii. A RM310,000 loan agreement dated 14 February 2011 to upgrade the

warehouse was not submitted to the Board of Directors of MFSB andFisheries Development Authority Of Malaysia (LKIM) for approval.

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iv. Corporate governance was weak as there were no monitoring and

corporate strategy and the corporate plan were not discussed by the

Board of Directors of MFSB.

c. Audit recommended that LKIM should review the viability of MFSB to prevent

it being a liability to the Government.

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POSTSCRIPT

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1. The performance audit on projects and activities showed that the planning of the

projects and activities by the Federal Statutory Bodies were good. However, in terms of

their implementation, there were several weaknesses that need to be immediately

addressed to ensure the implementation of each project or activity is carried out in an

efficient, economical and effective manner so as to achieve the stated objectives. Some

agencies have taken corrective actions after being highlighted by the audit.

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

based on sampling and on limited scope, a check and balance system should be

established by the Chief Executive Officer to ensure a thorough examination is carried

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

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

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

money.

2. Apart from conducting evaluation on the internal control system, the Internal

Audit Department should also conduct procurement audit and performance audit on the

management of programme/activity/project to determine the extent to which the

programmme/activity/project is carried out efficiently, economically, effectively and

achieve the stated objectives.

3. Government companies have to ensure that their financial performance are

always in a good condition; the management of activities are proper; prudent as well as

achieve the stated objectives; the financial management and corporate governance are

in line with the laws and regulations.

4. The National Audit Department has also established the Auditor-Generals

Dashboard in the year 2013 for the purpose of monitoring the corrective actions taken

by the respective agencies on the weaknesses reported. Chief Executive Officers

should take actions on the Audit issues highlighted and report immediately to the

National Audit Department to ensure that all actions can be updated into the Dashboard

System of the National Audit Department.

5. In addition to complying with legal requirements, I hope this Report will provide

lessons learnt to prevent recurrence of the weaknesses, strengthening improvement

efforts and enhancing accountability and integrity. This Report is also important in the

Governments efforts to boost productivity, creativity and innovation in public services as

well as create working culture that is fast, accurate and integrity. Eventually, it will

POSTSCRIPT

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contribute towards the achievement of the Government Transformation Programme

2.0 of the National Key Result Areas (NKRA) to fight corruptionas well as conform

to the needs, interests and aspirations of all Malaysians to fulfill the slogan of People

First, Performance Now.

NATIONAL AUDIT DEPARTMENT

Putrajaya

12 February 2014

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No. 15, Level 1-5

Persiaran Perdana, Precint 2

Federal Government Administrative Centre

62518 Putrajaya

NATIONAL AUDIT DEPARTMENT MALAYSIA

www.audit.gov.my