The Activities Of The Departments/

Agencies And The Management Of

Penang State Government Companies

2nd Series

Auditor General’s Report For The Year 2013

AUDITOR GENERAL’S REPORT FOR THE YEAR

2013

The Activities Of Departments/Agencies and Management

Of State Government’s Companies

For

Penang

2nd

Series

NATIONAL AUDIT DEPARTMENT

OF MALAYSIA

3

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

General to audit the State Government’s Financial Statements, Financial Management and

Activities of the State Ministries/Departments/Agencies. Section 5(1) (d) of the Audit Act

1957 empowers the Auditor General to carry out audit on any company registered under the

Companies Act 1965 that are receiving grant/loan/guarantee from the Federal or State

Government and any company where more than 50% of the paid-up share capital is held by

the Federal Government, State Government or a public authority. Articles 107 of the Federal

Constitution requires the Auditor General to report on the audit findings to the Supreme Head

of Malaysia, His Majesty, Seri Paduka Baginda Yang di-Pertuan Agong and His Excellency,

the Head of State of Penang. His Majesty will grant his Royal assent for the Report to be

tabled in Parliament while His Excellency will then assent for the Report to be tabled in the

State Legislative Assembly.

2. For the year 2014, the National Audit Department will continue to implement the

initiatives under the GTP2.0: NKRA Anti Corruption to table the Auditor General’s Report on

the Activities of Departments/Agencies and the management of State Government’s

companies in Parliament/State Legislative Assembly at every seating. The National Audit

Department will also continue to support the National Transformation Policy and to assist the

Departments/Agencies making improvements by giving opinions and recommendations

through the auditing carried out thus enhancing the people’s well-being. I hope the report

with regards to the implementation of Activities of Departments/Agencies and Management

of Penang State Government’s Companies for the year 2013 2nd Series will become the

basis for improving all weaknesses, strengthen efforts to improve and increase accountability

and integrity and obtain value for money for each expenditure made as desired by the

Government.

3. This report is the result of auditing carried out on certain activities implemented in one

Department, two Agencies and a State Government’s Company. Auditing on activities of

State Departments/Agencies is for the purpose of evaluating whether the programme and

activities planned are carried out successfully in accordance with the time frame set, no

wastage and their objectives are achieved. Auditing on management of company is to

evaluate whether the financial performance of the company is good, management of

activities, finance and corporate governance of the company were implemented orderly and

in accordance to the regulations and objectives are fully achieved.

4. Audit Observations have been submitted to the relevant Heads of

Departments/Agencies/State Government Companies. Only significant Audit findings are

reported in this Report. This Report is also forwarded to the Chief Minister’s and State

Secretary’s Office of Penang. In order to improve on the weaknesses highlighted or to avoid

their recurrence, I have forwarded 9 recommendations for the respective Heads of

Departments/Agencies to take action.

PREFACE

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5. I wish to express my gratitude to all officers of the State Departments/Agencies and

State Government Companies who have given their full cooperation to my officers

throughout the audit. I would also like to extend my appreciation and thanks to my officers

who have worked diligently and given their full commitment to complete this Report.

(TAN SRI DATO’ SETIA HAJI AMBRIN BIN BUANG)

Auditor General

Malaysia

Putrajaya

6th May 2014

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ACTIVITIES OF STATE DEPARTMENTS/AGENCIES AND MANAGEMENT OF STATE

GOVERNMENT’S COMPANIES

1. AGRICULTURAL DEPARTMENT

- Management Of Vegetable Cultivation Industry Development Programme

1.1. Agriculture Department of Penang (Department) was established to provide

consultation, technical support and professional advisory in various areas of agriculture.

Previously, the agriculture sector was more focused on crops commodity such as oil palm

and rubber. Nowadays, focus is on food crops, not only for domestic consumption but also

for export. One of the programmes implemented by the Department is Vegetable Cultivation

Industry Development Programme which intended to assist farmers to increase their

production and income.

1.2. The objective of the programme is to increase production, farmers' income, number of

farmers and the size of cultivated area. This programme involves the development activities

of vegetable cultivation. Implementation of this programme will strengthen the agricultural

sector as a contributor to economic growth for the state of Penang. Based on agricultural

statistics in 2012, cultivated area for vegetable crops in Penang is 493.69 hectares.

1.3. In implementing this programme, the agricultural inputs are provided free such as the

cost of land clearing, fertilizing, irrigation and others. Whereas, agricultural inputs such as

ploughing machines, water pumps, sprayers and others were given as loans. Participants

who wish to apply for the grants provided by the Department must have ownership of the

land/letter of authorisation to use or rent the land, an area of land to be cultivated in groups

of not less than 2 acres and the group applicant /entrepreneur who has passion and

dedication to foresee the success of agricultural projects.

1.4. An Audit conducted from the months of August to December 2013 revealed that the

overall Management of Vegetable Cultivation Industry Development Programme was

satisfactory in terms of increased size of planted area, the number of farmers, production and

average income per hectare. The advice given to the farmers was also satisfactory in trying

out new technology introduced by the Department such as fertilizer control, controlled usage

of pesticides, crop techniques and diversity of crop seeds. The Department also encourage

farmers to adopt Good Agricultural Practices (GAP) and promote application for a certificate

ofGood Farm Practice Scheme of Malaysia (SALM) and the Malaysian Organic Scheme

(SOM) for the production of quality planting and competitiveness. However, there were some

weaknesses that need to be addressed as follows:

Net target income of RM1, 000 for Plantation Project Group (PB) has yet to be fully

achieved.

REPORT SUMMARY

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Violation of the use of pesticide residues exceeding the Maximum Residue Limit

(MRL) and controlling of pesticides used by farmers.

Assistance for agricultural inputs and equipment loans did not follow stipulated

criteria.

Issuance of fertilizer from the store did not follow best practices of “First in First out

(FIFO)”.

Updating the module of Production Report, Farm and Crop Information in AgrIS

GeoPortal System (AgrIS) not done by the Area Development Agent (APK).

1.5. To overcome the weaknesses and improve the management of the Vegetable

Cultivation Industry Development Programme, it is recommended that the Department Of

Agriculture takes the following actions:

1.5.1. Targeted number of farmers who are able to achieve the revenue of RM1, 000 per

month and the selection of beneficiaries of agricultural inputs according to defined criteria

must be set.

1.5.2. Enhance the monitoring of the use of pesticides by farmers. Similarly, the

Department should ensure the issuance of fertilizers from the store is according to FIFO

method.

1.5.3. Ensure that equipment/machine that has broken down and not repaired or used by

farmers be given back to the Department to be repaired and distributed to farmers in need.

1.5.4. Ensure APK update production information data and farm information in the AgrIS

GeoPortal System.

2. PENANG HILL CORPORATION

- Management Of Penang Hill Tourism Programme

2.1. Penang Hill is a famous highland area in Penang with panoramic views of the City of

Georgetown which has a natural environment and heritage of its own. Total area of Penang

Hill is 464.14 hectares consisting of forest area, privately owned land, government quarters,

hotel and other development areas. The uniqueness of the main attractions in Penang Hill is

the train and railroad which is over 2,007 meters long. Penang Hill Corporation (Corporation)

was established on 1st June 2010, under the Enactment of the Penang Hill Corporation, 2009

(Enactment). Its function is to operate the rail services and is responsible for developing,

encouraging, facilitating and undertaking economic, social and infrastructure in the

Corporation. For the period 2011 to 2013, the Corporation has spent a total of RM38.41

million in operating expenditure out of an allocation of RM31.71 million and includes a total of

RM13.50 million which was contributed to the Penang State Government.

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2.2. An Audit carried out between the months of August to November 2013 revealed that

as a whole, the Penang Hill tourism programme carried out by the Corporation was

satisfactory. Although the performance of tourist arrivals and revenue exceeded targets,

there are still some areas that need to be improved such as follows:

The information in tourism brochure was inaccurate.

The website was not updated.

2.3. To ensure the management of the tourism programme in Penang Hill can be

enhanced, it is recommended that the Corporation to take action to ensure the information in

the brochure is accurate and the website is continually updated to provide the latest

information.

3. SEBERANG PERAI MUNICIPAL COUNCIL

- Management of Procurement

3.1. Seberang Perai Municipal Council (Council) was established by virtue of the powers

conferred by Section 3 of the Local Government Act 1976. Council area covers all areas of

Seberang Perai, comprising Northern Seberang Perai District, Central Seberang Perai

District and Southern Seberang Perai District with has a total area of 738 square kilometers.

The Council is governed by the President (YDP) as the chief executive and 24 other

Members of the Council. The management body of the Council consists of 16 departments

headed by the Municipal Secretary as Head of Administration and assisted by the respective

Director of the Departments. All management is under the control of the YDP with assistance

by the Municipal Secretary to exercise coordination of the departments. Procurement

Division in the Department of Management Services has been commissioned by the Council

as procurement secretariat. Procurement Procedures of the Council is subject to Standing

Orders 1996, Treasury Instructions and circulars issued by the Federal and State

Governments from time to time. Procurement is defined as works and supplies effected

either through direct purchase procurement, direct negotiations, vote, quotations and

tenders. In the years 2011 to September 2013, the Council has conducted a total of 14,695

works procurement and supplies amounting to RM238.45 million with the allocations from

Council, the State Government and the Federal Government.

3.2. An Audit carried out from the months of July to October 2013 revealed that the

management of procurements by the Council was satisfactory in terms of the process of

advertising, offer of works and appointment of committees. However, there were some

weaknesses that need to be overcome as follows:

Delayed in signing of contract documents.

Progress payments made before contract was signed.

Late supply.

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The work done was not in accordance with the terms and specifications.

3.3. To ensure that the procurement of supplies/services and works are carried out

properly, efficiently, prudently and obtained value for money in public spending, it is

recommended that Council consider the followings:

3.3.1. Ensure all procurement processes are done in an orderly manner and in compliance

with the principles of Government procurement procedures and can be utilised by the user to

achieve the intended objectives.

3.3.2. Always monitor and provide surveillance of work implemented by the contractor to

ensure that it follows the required specifications.

4. PENANG DEVELOPMENT CORPORATION

- PDC Consultancy Sdn. Bhd.

4.1. PDC Consultancy Sdn. Bhd. (PDCC) is a wholly owned subsidiary of PDC Premier

Holdings Sdn. Bhd. (PDCPH) under Penang Development Corporation. PDCC was

incorporated on 15th January, 2004. PDCC has taken over the assets, liabilities and

businesses of three subsidiary companies under PDCPH, namely PDC AR & T, Total Project

Management Sdn. Bhd., PDC Technical Services Sdn. Bhd. and DCT Consultancy Services

Sdn. Bhd.. PDCC began operations in April 2004 with an authorised capital of RM5, 000,000

and a paid-up capital of RM2, 500,001. The Board of Directors of PDCC consists of 5

members. PDCC’s vision is to provide consultancy services in various fields. Their mission is

to provide professional consulting services with integrity whereas their objective is to provide

quality and competitive consulting services. PDCC’s main activities are providing consulting

services encompassing architectural work, engineering, quantity surveying and project

management.

4.2. An Audit carried out from the months of July to October 2013 revealed that as a

whole, the management of financial performance and corporate governance of PDCC was

satisfactory. However, the management of its activities can still be enhanced due to:

Commencement of construction work before the approval of the Authority for Flyover

Project across the Second Bridge in Batu Kawan and Quartermile Project. Whilst for

the Ixora project, PDCC was compounded for building covered car park before the

approval of the amended building plan.

Delays in the completion of two projects between 96 to 234 days.

Variation Order (VO) issued was not within the scope of the contract.

Construction of sedimentation pond for Jalan Bukit Bendera Parking Project was not

in accordance with the drawing plan.

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Payment to consultant amounting to RM2.37 million has been outstanding for a

period of 1,582 to 2,163 days.

4.3. To ensure the management of the Company is enhanced, PDCC is recommended

to take the following actions:

4.3.1. Ensuring that the approval of the relevant Authorities be obtained before

commencement of construction works for all projects.

4.3.2. Enhancing the monitoring of projects undertaken by PDCC so that the clauses

stipulated in the contract are complied with.