PRIME Minister Datuk Seri Najib Tun Razaks reminder on the importance of value for money in public spending

resonates with the mission of public sector auditors, be it at the National Audit Department or the internal audit units of ministries and agencies, in ensuring there is accountability and integrity in public spending. This is key prerequisite to good governance. Underpinning the concept of value for money is the dictum of opportunity cost, whereby a ringgit saved can be better spent elsewhere for the public good. The Governments financial resources are not unlimited. With the increasing demands for goods and services, it is imperative that public spending deliver value for money. The Government annually spends billions in operating and development expenditure on programmes and activities. Is this done on the basis of the 3Es Economy, Efficiency and Effectiveness which are the hallmark of value for money? The amendment of the Audit Act 1957 in 1980 introduced new elements incorporating managerial and programme accountability, besides financial accountability. This Act paved the way for value-for-money audits in the Malaysian public sector. The National Audit Department is tasked with checking whether the 3Es have been practised in public spending, essentially through the various performance audits. We look at how well governmental programmes and activities have been planned, implemented and monitored, and make recommendations for improvements to the agencies concerned. Value-for-money audit is basically a comprehensive and constructive examination of an organisation, its plans and objectives, method of control, means of operation and use of resources. It is an extension of financial audit and provides lessons learned to improve the performance of the public sector. The annual Auditor-Generals Report invariably also highlights expenditure incurred not based on the 3Es but of 3Ps instead Pemborosan (extravagance), Pembaziran (wastefulness) and Penyelewengan (fraud). The three are not mutually exclusive, though. These lapses in performance would certainly cause losses to the Government and adversely impact the credibility of the Governments delivery system. In public spending, cost must be weighed against the benefits in order to obtain value for money for the Government. Audit on procurement and management would sometimes reveal imprudence. Examples of imprudence can include equipment purchased, sometimes costing millions of ringgit, which were never utilised, unsuitable for need, or under-utilised; machines purchased from abroad when

available locally; purchasing of overpriced items or without consideration for economies of scale; white-elephant projects, that is, those facilities constructed and completed but underutilised; improper maintenance of equipment and so forth. Where internal controls are insufficient and/or ineffective, public sector fraud can happen. In such cases, forensic investigation by authorities such as the Malaysian Anti-Corrupt-ion Commission is required. Audit reports do provide tell-tale signs of possible fraud. This could include unjustified high cost of equipment, payment made in full although contractors or vendors work has not been completed or equipment has yet to be delivered, certifying projects when defects have not been rectified, and other forms of false claims. There are also instances where value for money of infrastructure projects is questioned. These include projects which continue to be delayed despite several extensions and significant cost escalation, including additional expenditure to rectify defects not fully carried out during the defect-liability period. When contractors do not perform and their services are terminated and new contractors appointed, reevaluation of costs has to be done which might include damage (pilferage) to work already done and cost escalation. In these instances, additional costs will also be incurred in extending the tenure of the consultants engaged to monitor the work of contractors. Projects which focus more on aesthetics over functionality could also lead to higher maintenance costs for the user later. This is further aggravated when the fees of consultants are determined as a percentage of project costs. Thus, the higher the costs, the higher the fees of consultants. A case in point the designer schools where cost increases contributed to cash-flow problems to the Education Ministry because there was an overrun in the budgeted cost. The root causes of imprudence include hasty or poor planning, uncoordinated implementation, lack of cooperation among agencies or divisions, absence or lack of monitoring and supervision, failure to comply with the terms and conditions of the contract, insufficient allocation of funds, lack of manpower and ineptitude of officers. In a nutshell, the root cause is simply poor project planning and management. Prudent spending requires discipline. It can be achieved if care is taken to avoid the 3Ps. Each project has its own stakeholder issues. This said, there is never an excuse for not managing projects in the most economical and efficient manner.

Economy in management is not a difficult task. A government entity needs to follow the common government practices in acquiring goods and services in the right quantity and quality, at the most optimal price. It needs to produce services and/or undertake projects with maximum output at the lowest cost. In terms of efficiency management, a standard has to be established before evaluating the performance. The objectives and targets to be achieved must be clearly stated in writing and made known to all interested parties. Clear guidelines on the ranking of priorities and targets for various programmes must be defined. Value-for-money audit is continually evolving and one that offers a significant potential to add value. Together with the traditional financial audits, it plays an essential role in the accountability framework within the government system. It shall continue to be the basis of future audits. It provides the Legislature with meaningful reports on performance of the government in managing resources and promoting good governance and efficient service delivery. To add value in a climate of continuous improvement and ongoing public sector reforms is a major challenge for the department. With the support of trained manpower, the department is endeavouring to enhance the coverage of value-for-money audits by focusing on key sectors of the economy and identification of new areas to bring them within the purview of audit. The department is also well aware of the need to upgrade the methodology in vogue for value-formoney audits, in line with the advanced IT environment of audit entities. Efforts are being made to create genuine awareness of the aspects of 3Es through seminars and training. Accountability can be strengthened if more emphasis is placed on good governance, efficient service delivery and transparency in government operations. In the spirit of 1Malaysia, People First, Performance now, the valuefor- money principle should be an integral part of the national transformation process. The department aims to produce high-quality audits that add real value by identifying areas where improvements in administration are required. It is also identifying areas of best practices to protect and safeguard public funds by enhancing the administrative and financial integrity, and prevent any abuses, financial deviations and/or misuse of

powers within the public service. The underlying principle that guides the work of auditors is ensuring trust and integrity while maintaining independence, objectivity and professionalism. Tan Sri Ambrin Buang is Auditor-General of Malaysia. He can be contacted at ag@audit.gov.my --The Star