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Thread: Governance: Auditor-General's Report 2012

   
   
       
  1. #1
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    Governance: Auditor-General's Report 2012

    Published: Tuesday October 1, 2013 MYT 11:36:00 AM
    Updated: Tuesday October 1, 2013 MYT 2:19:01 PM

    Auditor General’s report highlights five general weaknesses

    BY LOSHANA K SHAGAR


    KUALA LUMPUR: The Auditor General's report on seven projects and activities by government statutory bodies highlighted five general weaknesses.
    In general the weaknesses were improper payment, work or supplies not according to specifications, low quality or inappropriate, unreasonable delays, wastage, weakness in management of products and assets.
    Auditor General Tan Sri Ambrin Buang said on Tuesday, among the reasons were carelessness in adhering to procedures fixed by the Government, lack of attention to detail when planning projects or fixing scopes and specifications of tenders and no frequent monitoring of contractors, negotiators or suppliers.
    He also mentioned reasons like lack of skill in project management, late decisions on acquisitions, incomplete and outdated agency information systems, lack of attention towards effectiveness or impact of a project, and lack of funds for asset management.
    The seven government statutory bodies audited were Malaysian Agricultural Research and Development Institute (MARDI), Universiti Malaysia Sabah, Universiti Malaysia Kelantan, Universiti Utara Malaysia, Employees Provident Fund, Retirement Fund (Incorporated)(KWAP) and the Accountant General’s Department of Malaysia.
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    • october 3, 2013, 7:04 AM

    Malaysia Auditors Accuse Government of Wasteful Spending



    KUALA LUMPUR, Malaysia — Malaysia’s national audit body has accused the government of wasteful spending and mismanagement, reviving concerns that the ruling party isn’t succeeding in its pledge to wipe out inefficiency and corruption that add to the country’s challenge of closing budget deficits.
    ReutersMalaysia’s Prime Minister Najib Razak has made ending corruption and government waste priorities. A new audit found excessive spending and other problems.
    The 2012 Auditor-General report, which was released to Parliament this week, flagged project delays and cost overruns for government projects. It also said it found gaping holes in management and budget monitoring by the police, health ministry and other key departments.
    For example, auditors said the Royal Malaysian Police between 2010 and 2012 “lost” 44 units of firearms, 156 handcuffs and 29 vehicles — assets totaling 1.33 million ringgit ($412,743).
    The process of dealing with such losses by police headquarters “was unsatisfactory,” the report charged, with significant delays in the investigation, from the time the losses were detected to the time they were reported. The Royal Malaysian Police could not be reached for comment.
    The report didn’t estimate the total cost of the problems it said it found.
    Yeah Kim Leng, chief economist at RAM Ratings said the report “affects the public’s perception of the government’s credibility and complicates the government’s efforts at fiscal consolidation.”
    Ending waste and corruption, which can hurt competitiveness, have been key policy goals of Prime Minister Najib Razak. The prime minister, who hasn’t publicly commented on the report, has launched a name-and-shame initiative against officials charged with graft. He is also trying to tighten government finances. But economists say the audit’s findings are a reality check.
    The audit body said it found over-the-top spending at the Broadcasting Department, which auditors said paid 120,210 ringgit to purchase clocks and scanners. Despite budgeting only 100 ringgit per clock, the department bought 20 wall clocks at 3,810 ringgit a piece, the report said. Spending for individual scanners was 14,670 ringgit, far above a budget of 200 ringgit per unit, the report said.
    Attempts to reach the Broadcasting Department for comment were unsuccessful.
    Auditors said hundreds of officials at the Health Ministry had sought reimbursements for clothes and shoes through “questionable” receipts. For example, addresses for many of the outlets where the clothing was said to have been purchased from were found to be fake, the report stated.
    Auditors also said they found inflated costs, showing that claims for shoes alone totaled between 206,723 and 207,293 ringgit.
    Attempts to reach officials at the Health Ministry were unsuccessful.
    In addition, the audit body criticized the department of solid waste management for letting incinerators at four locations — mostly tourist destinations — lie idle for most of the past year. It said it found a lack of trained operators to run them. Total construction for the incinerators amounted to nearly 200 billion ringgit, but the report said three of the four projects stretched well-beyond their deadlines and operations were marred with glitches.
    No one at the solid waste department was available for comment.
    The audit is a fact-finding exercise aimed at exposing holes in government finances in an economy where the national budget has been in deficit for the past 15 years.
    But economists say the audits have been ineffective in doing much more than spotlighting excesses.
    Malaysia is expected to widely miss a target of narrowing the fiscal deficit to 4 percent of gross domestic product from 4.3 percent last year.
    The government aims to gradually narrow the deficit each year so it can achieve a balanced budget by 2020. It expects to achieve its target by reducing costly subsidies that weigh on its already strained finances. Last month, Mr. Najib partly cut fuel subsidies for diesel and a widely-used variant of gasoline, a move that is expected to generate 1 billion ringgit in government savings this year.
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    The Auditor General’s Report – An auditor’s questions


    For over 30 years I’ve been responsible for business processes ranging from Research and Development to Customer Feedback, in companies which report turnover in billions of dollars.


    I’ve spent the second half of my career in quality management. I know how processes are designed, resourced, implemented, examined and confirmed.


    I know about legal requirements, industrial standards and moral/ethical decision making.


    For a time I was responsible for assuring that nineteen manufacturing sites and research centres as well as dozens of contract manufacturers and hundreds of suppliers did the right things: followed defined and approved processes to specify, order, receive, make, release, store, deliver, service and improve products.


    I've conducted, reviewed and responded to many audits. Audits are required by most quality-related regulations and standards. Audits are especially powerful when conducted by skilled auditors.


    Meetings during the course of an audit


    During audits it's customary for the auditors to hold an opening meeting on day one, debrief meetings at the end of each day and a closing meeting on the last day to summarize all issues. By the time of the closing meeting, all auditees and their managers will know what ‘non-conformances’ are likely to be included in the auditors’ report, and the severity rating for each non-conformance. They will therefore be unsurprised by the final report.


    The severity ratings used in most organizations can be mapped to levels similar to these: critical (‘fix it within a week’), major (‘fix it within 3 months’), minor (‘fix it within 6 months’) and opportunity-for-improvement (‘do it when you’ve done the other things’).


    Good department managers


    Over the years I have found that good department managers not only welcome audits. They keep the spectre of audit before their subordinates and peers all the time. They insist that their people co-operate fully with auditors. They use audit results to make changes – of people, processes and procedures.


    Good department managers understand and accept that every audit will find issues. They are eager to know the issues and to “close the audit findings.”


    Example of a positive response to an audit


    Once, during day 2 of a 4 day audit, we uncovered a system issue in one department. I thought it was likely to be rated as either a critical or a major non-conformance. I reported it during the daily debrief. The auditees agreed our observation about the system was correct.


    After the meeting, the Manufacturing Director asked the department’s Manager and his team to stay back for a discussion. I learned later that they met from 6 to 9 pm.


    The next day, I was surprised that instead of the usual driver, the Manufacturing Director came to the hotel at 8 am to pick up the audit team of which I was the leader.


    As his driver took us to the factory, the Manufacturing Director told me that he understood the non-conformance and that he would not disagree to it being rated critical. He said he and the department head had already discussed it with another of our factories (in another country) and had found a way to correct the system.


    He explained the proposed solution to me and asked if the change would result in the site returning to compliance with company policy and all applicable regulations and standards – since we were exporting the product to many countries. I agreed it would.


    Duration of key audit-related activities


    Usually it takes a month for the auditors to send a draft audit report to the auditees for review. The reason it takes so long is that a verification process is used: everything stated as fact must be confirmed. Also, the severity rating of each non-conformance must be checked to ensure it’s the same as the rating given to similar non-conformances found elsewhere – whether in the same site or on the other side of the planet.


    So I was very surprised when, 3 weeks after I completed the site audit, I received a message from the Manufacturing Director inviting me to return and perform a re-audit to confirm that the issue had been fixed. He even offered to pay all the expenses associated with my trip, since I had not budgeted it in my department.


    I was very pleased with the positive way in which he had responded to the non-conformance I had found. However, I declined to do the re-audit, because there’s a process to be followed – as you will know if you’ve ever been audited by quality professionals.


    Elements of a good audit process


    This is the typical process (with some details omitted in the interest of clarity):


    An audit is scheduled, often a year in advance.
    The audit is resourced with auditors having the skills appropriate to the activities performed at the site to be audited.
    The audit is performed. The audit includes review of effectiveness of actions taken to correct issues reported in the previous audit report. (If anything is not confirmed to be fixed, a critical non-conformance will be raised; if this happens, you can be quite sure heads will roll.)
    Within 30 days the draft audit report is sent to the auditees for review and corrections.
    Within 7 days the confirmed audit report is formally issued by the Lead Auditor.
    Within 30 days a detailed Corrective Action Plan (sometimes including disciplinary actions) is sent by the leader of the audited site to the auditor for review of adequacy.
    Within 14 days a final Corrective Action Plan is approved by the Lead Auditor, who generally expects all non-conformances to be fixed within 30 days of the date on which the Corrective Action Plan is approved.


    Monitoring status of responses to audits


    Monthly status reports are sent by the leader of the audited site to the Lead Auditor until all corrective actions are completed, and a re-audit is performed to confirm the actions are effective.


    In parallel, the Office of the Auditor issues monthly or quarterly status reports which indicate whether non-conformances are being closed as planned. A key element in these reports is a tabular or graphical trend chart which shows the state of conformance of each site, region and business over time (often for 3 years).These reports go all the way to the office of the CEO.


    In the companies I have worked for, all of the above also applies to financial auditing. Occasionally I’ve lead, trained or guided teams who’ve worked on fixing issues involving financial policies, e.g. buying or selling goods and services, as these usually involve changes to each site’s selling and procurement procedures.


    Concluding thoughts


    Do you see what’s missing in all the reports about and responses to the Auditor General’s Report?


    Is there a re-audit process?

    Is severity assigned to each issue observed? Is severity elevated if an issue from a previous audit is not fixed?

    Can auditees honestly claim they are surprised by some issues included in the Audit Report? Are there Corrective Action Plans?

    Is there a monitoring process? When and how will the audit be closed?

    Who's being commended for timely and effective response to audit findings?


    Finally, an audit is a snapshot taken at ‘a moment in time.’ What about the processes the auditors did not have time to audit? How big is the iceberg?


    Posted Yesterday by Ramanathan
    Labels: quality Auditor General government audit
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  4. #4
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    Money for nothing

    Posted on 9 October 2013 - 08:23pm
    Last updated on 10 October 2013 - 12:37am Tricia Yeoh




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    IF there is one government document Malaysians look forward to each year, it's the Auditor-General's Report. Once released, we go crazy picking it apart and selecting our favourite delectable pieces to rave about to friends.


    It was no different this year with the 2012 report. This time, we even managed to make it to the Wall Street Journal that reported on the wasteful spending and mismanagement.


    For instance, we read about the Education Ministry wasting RM2 billion on poor school security systems with unsatisfactory results, 20 branded wall clocks bought by the Broadcasting Department for RM3,810 each, more than 38 times the estimated price of RM100, and a RM400,000 claim difference for Health Ministry uniforms, among many other ridiculously shameful examples (never mind the 44 missing loaded firearms that the police said could have fallen into the sea from boats).


    A total estimate of wastage caused by such gross inefficiency was not given, mainly because this was merely a partial audit of the federal government bureaucracy. The report only covered observations from the audit of 45 programmes/activities/projects of the federal ministries/departments and management of six government companies, so imagine the results if this sampling was widened to include the hundreds of programmes run by the total number of 24 ministries over the full year.


    Even so, the total sum of wastage based on select cases quoted by mainstream media came up to RM3.5 billion, which, by the way, is RM200 million more than what the Finance Ministry has told us the government would save by increasing oil prices in its recent subsidy rationalisation move.


    Although government does eventually need to phase out subsidy dependency, what infuriates people most is that such efforts are not perceived to be matched in commensurate measure by attempts to reduce unnecessary government spending.


    It was timely that an IDEAS policy paper (the Institute for Democracy and Economic Affairs for which I work) by author Professor David Jones from the University of Brunei Darussalam, gave specific proposals on how transparency could help existing failings in the public procurement system.


    He states that Malaysia spends more than RM150 billion each year on procurement, almost one fourth of our nominal GDP. This is higher than what most OECD countries spend, about 12% of their GDP annually.


    The various acts, treasury instructions and circulars that form the basis of government procurement are clear, for example in stipulating that open tenders are required for works, goods and services procured worth more than RM200,000 a year.


    However, direct purchases and quotation/ closed tenders are still allowed for procured works, goods and services of value below RM200,000, which opens up a lot of room for potential bribery and corrupt practices – and this is the heart of the matter.


    The three most worrying concerns that this annual debacle raises are first, that the report released year after year does little to change administrative practices but raise public ire.


    Although a committee will be set up to scrutinise the report and take "stern action" against anyone involved in misappropriation, it remains to be seen if the real culprits will be brought to shame.


    Second is the culture that is ingrained into many public servants that government money is abundant and ever-flowing. During my first few months of working at the newly-elected Selangor government, the staff in charge of catering food for meetings would consistently increase the number of people being ordered for.


    As I understand it, this was common practice: order for more, so that the remaining food could be packed by civil servants who would mysteriously flock in from other parts of the building. Although this has since changed, one wonders if this applies in larger scale in say, ministry offices.


    Among the recommendations of the IDEAS policy paper to improve the procurement system are to publicise the laws, regulations and instructions governing procurement, widely advertise tenders and quotations, disclose the budget ceiling for each tender, disclose the company awarded the tender, the reasons for this, better procurement planning processes, and also include a representative from a watchdog organisation to sit in procurement board meetings.


    The auditor-general has made 796 different recommendations to the federal government in his 2010, 2011 and 2012 reports. This year, he specifically cited improper payment and weakness in management of products and assets as among the weaknesses observed.


    Of course, what is not mentioned is the inability of civil servants to themselves act even if they wanted to because ultimately, evaluation and contract awards are influenced by politicians' lobbying, and "recommendation letters" that reflect vested interests that they are connected to.


    Third, this raises further questions as to the areas of government spending that the AG's office does not investigate, for instance public-private partnerships (PPP) and private-finance initiatives (PFI) projects that may not necessarily fall under the government procurement regulation requirements.


    Although tenders are encouraged under PPP, the decision is ultimately made by the cabinet. (The cabinet is the final decision-maker for all procured jobs across the board worth more than RM100 million.)


    More importantly, government spending during a pre-election period – was the RM2.2 billion payout for present and retired civil servants Prime Minister Datuk Seri Najib Razak announced just weeks before the May 5 election part of planned expenditure, for example?


    Unless recommendations from the report and independent parties are seriously taken up, without political interference (which we all know is the biggest roadblock on the path to better governance), the AG's report will continue to be fodder for criticism.


    What should be of even more grave concern to all Malaysians is the great unknown – just how much more wastage and inefficiencies are there, which are not being investigated?


    Tricia Yeoh is chief operating officer at an independent think-tank. Comments: letters@thesundaily.com



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