AUDITOR GENERAL REPORT

ACTIVITIES OF THE FEDERAL MINISTRIES/DEPARTMENTS AND MANAGEMENT OF THE GOVERNMENT COMPANIES SERIES 1

NATIONAL AUDIT DEPARTMENT MALAYSIA

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CONTENTS

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CONTENTS

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PREFACE SYNOPSIS

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PART I
IMPLEMENTATION OF ACTIVITIES BY THE FEDERAL MINISTRIES/DEPARTMENTS PRIME MINISTERS DEPARTMENT Malaysian Maritime Enforcement Agency 1. Management On The Acquiring Of Movable And Immovable Assets Department Of National Unity And Integration 2. Management Of Grant, Payment Of Activities And Data Collection Of Rukun Tetangga

MINISTRY OF FINANCE Inland Revenue Board Of Malaysia 3. Construction Of The Processing, Production And Warehouse Centre Project In Bangi 4. Management On Company Instalment Payment Scheme (CP204 Form)

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ROYAL MALAYSIAN CUSTOMS DEPARTMENT 5. Management Of Export Activities 6. Risk Management On Clearance Of Air Cargo Imports MINISTRY OF WORKS Public Works Department 7. Contract Administration Of PWD Projects MINISTRY OF TRANSPORT 8. Upgrading Of Kota Kinabalu International Airport Project, Sabah MINISTRY OF FEDERAL TERRITORIES AND URBAN WELLBEING Kuala Lumpur City Hall 9. Management Of Recreational Facility Projects In Kuala Lumpur City MINISTRY OF EDUCATION MALAYSIA 10. Management Of 1Malaysia Milk Programme 11. Construction And Equipment Procurement Of Preschool Project 12. Management Of Building And Compound Cleaning Services At Schools/Educational Institutions MINISTRY OF HEALTH 13. Management Of Nursing Training Programme 14. Management Of Ambulance

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MINISTRY OF HOUSING AND LOCAL GOVERNMENT Fire And Rescue Department Of Malaysia 15. Management Of Fire Vehicles And Equipment

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MINISTRY OF WOMEN, FAMILY AND COMMUNITY DEVELOPMENT 16. Management Of Financial Assistance To Non-Governmental Organisations

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MINISTRY OF DEFENCE 17. Management Of Dry Ration Supply For Royal Malaysian Navy

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MINISTRY OF HOME AFFAIRS 18. Construction Of CIQ Complex And Jetty At Melaka River Mouth, Melaka

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Royal Malaysian Police Force 19. Procurement Of Beechcraft King Air 350 Aircraft For Air Operation Force

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The Registry Of Societies Malaysia 20. Management Of Societies Registration Activity

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PART II
MANAGEMENT OF THE GOVERNMENT COMPANIES

21. Pendinginan Megajana Sdn. Bhd. 22. Sarawak Hidro Sdn. Bhd. 23. Halal Industry Development Corporation Sdn. Bhd. 24. Technology Park Malaysia College Sdn. Bhd.

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POSTSCRIPT

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PREFACE

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PREFACE

1. Articles 106 and 107 of the Federal Constitution require the Auditor General to audit the Federal Governments Financial Statement, financial management, activities as well as management of the Federal Government Companies and submit his reports to His Majesty, Seri Paduka Baginda Yang diPertuan Agong and obtain his assent before tabling them in Parliament. Beginning 2013, the Auditor Generals Report will be tabled at each sitting of the Parliament or three times a year in line with the Government Transformation Programme 2.0 in fighting corruption under the National Key Result Areas. 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 Governments 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/

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Departments is in accordance financial laws and regulations.

with

relevant

1.3. Performance Audit - to evaluate whether Federal Government activities have been carried out efficiently and economically to achieve their 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 consists of 2 parts as follows: Part I : Implementation Of Activities Of The Federal Ministries/Departments Management Of Federal Government Companies

Part II :

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,
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asset management, law enforcement, procurement, revenue management, education, health, agriculture, human capital, contract administration and socioeconomic upgrading programmes. This report contains observations from the audit of 21 programmes/ activities/projects of 15 Federal Ministries/ Departments and management of 4 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 Governments assets. The said weaknesses were due to negligence when complying with the Governments rules/procedures; 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. In order to help the Ministries/Departments/ Government Companies to rectify the weaknesses which were highlighted in the Auditor Generals Report
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for the years 2010 and 2011, a total of 653 recommendations were made. In the 2012 Auditor Generals Report Series 1, a total of 143 recommendations were made to the Ministries/ Departments/Government Companies for corrective actions or to prevent the same weaknesses from recurring. The National Audit Department will monitor continuously to ensure appropriate actions will be taken by the relevant parties and will report the updated status in the 2013 Auditor Generals Report. 5. 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 March 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

SYNOPSIS

PART I - IMPLEMENTATION OF ACTIVITIES BY THE FEDERAL MINISTRIES/DEPARTMENTS

PRIME MINISTERS DEPARTMENT Malaysian Maritime Enforcement Agency 1. Management On The Acquiring Of Movable And Immovable Assets a. The Malaysian Maritime Enforcement Agency (MMEA) was formed after a maritime management studies conducted by the Government in April 1999. The result of the study showed that the maritime enforcement was not very effective because there were over 12 departments/agencies responsible for the management of maritime. This resulted in duplication of functions and responsibilities and uneconomic use of resources. In August 2002, the Federal Government agreed to the establishment of MMEA as an integrated team through merging existing maritime enforcement agencies. The Government decided that MMEA took over the function of the coast guard from the maritime agencies involved such as the Marine Operation Force of the Royal Malaysian Police, the
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Royal Malaysian Customs Department, the Department of Fisheries Malaysia, the Marine Department of Malaysia and the Royal Malaysian Navy. Based on the decision of the Government, all agencies involved should hand over their assets related to maritime enforcement. Audit findings revealed that, in general, the management on the acquiring of movable and immovable assets of MMEA was satisfactory. However, there were some weaknesses as follows: i. age of ships/boats received exceeded their useful life; ii. immovable assets received were damaged and left idle; iii. immovable assets were not fully received; iv. jetty/office that was handed over/shared was not suitable for use/could not be used; v. the jetty in Tawau District Maritime which was handed over to MMEA was uneconomical to repair; vi. assets handed over could not be modified; vii. KEW. PA forms for movable (ships/boats) were not prepared; and assets

viii. staffing for ships/boats handed over were not provided.

b. It is recommended that MMEA considers the following actions: i. take prompt measures on immovable assets which were damaged and left idle by repairing or disposing them; ii. hold discussion with the parties involved such as the Marine Operation Force, the Royal Malaysian Customs Department and the Department of Fisheries so that they could jointly use the jetty. In addition, adequate office space should be provided to MMEA staff. Among the things that could be discussed are choosing a suitable area for jetty operation and application for additional operational office space for enforcement operations; iii. construct a new jetty in Tawau District Maritime to ensure smooth enforcement operations of MMEA; iv. find a solution so that the building in Kuala Kedah base could be repaired and renovated for use; v. expose the staff involved to MMEA asset management based on relevant circulars to ensure proper implementation; and vi. urgently provide additional MMEA staff as intake offers to members of the Marine

Operation Force and the Royal Malaysian Customs Department received no response. MMEA operations could be affected due to insufficient staff to operate ships/boats delivered.

Department Of National Unity And Integration 2. Management Of Grant, Payment Of Activities And Data Collection Of Rukun Tetangga a. The Rukun Tetangga was established by the Government in 1975 under the Essential (Rukun Tetangga) Regulations 1975 (PU (A) 279/75) for security purposes through mandatory patrols by residents due to the threat of subversive elements at that time. The function of the Rukun Tetangga Area (KRT) has been expanded by the Department of National Unity and Integration (DNUI) from time to time by encouraging KRT to organise activities focusing on elements of unity, community, charity, education, economy or activities which are beneficial to the local community. The objective of Rukun Tetangga activities is to preserve, enhance and strengthen national unity and integration in line with the Governments policies/rules. Audit findings revealed that generally, the management of grant/payment and data collection of Rukun Tetangga by DNUI were unsatisfactory and needed

further improvement. Among the weaknesses found were as follows: i. the amount of grant distributed was not uniform; ii. grant distribution/payment of Rukun Tetangga activities was not done accordingly; iii. reports/statistics of KRT activities generated from DNUI Information System were not up to date; iv. records/reports of KRT activities/finance were not up to date; v. the number of activities performed by KRT as stated in the form that was used to obtain Rukun Tetangga information could not be verified; vi. justification for the assessment of activeness level could not be verified; KRT

vii. vacant posts at DNUI district level were not being filled/filled through administrative means/task performed through One Man Show; and viii. limited number of vehicles for supervision purposes of KRT. b. It is recommended that DNUI takes the following actions:

i. fix the amount of grant to be distributed to KRT based on its activeness level for uniformity purposes. Justification should be provided in writing by state DNUI if the amount of grant distributed is more/less than the fixed amount; ii. clearly state in writing the need for KRT to comply with the Guidelines on Rukun Tetangga Account and Inventory Control (Panduan Pengendalian Akaun Dan Inventori Rukun Tetangga) in financial management. Adequate training relating to the Governments financial management should also be provided. In addition, monitoring on KRTs financial management should be enhanced; iii. evaluate the level of acceptance/accessibility/ feasibility for KRT to key in the required information into the e-RT modules in the DNUI Information System; iv. organise the reports relating to Rukun Tetangga activities in files and issue reminder/warning letter to KRT which did not submit the information required; v. ensure that the KRT Performance Evaluation Form is prepared and could be cross checked/supported with the activity reports submitted by KRT;

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vi. revaluate human resource management at district DNUI to ensure effective administration and supervision of KRT; and vii. expedite procurement to replace vehicles which are spoilt and not economical to be repaired.

MINISTRY OF FINANCE Inland Revenue Board Of Malaysia 3. Construction Of The Processing, Production And Warehouse Centre Project In Bangi a. The Inland Revenue Board of Malaysia (IRBM) had planned to build a Processing, Production and Warehouse Centre under the Eighth Malaysia Plan. This project was an integral part in the implementation of the Self Assessment System which was to process and store income tax forms. For implementation of this project, 3.1 acre of land at Lot Institusi 2, Seksyen 9, Bandar Baru Bangi, Selangor was acquired through direct negotiation with the Selangor State Development Corporation. The project was approved for implementation under the Ninth Malaysia Plan. The contract worth RM57.6 million was awarded to S.N Akmida Holdings Sdn. Bhd.. Audit findings revealed that the management of the project was unsatisfactory. Among the weaknesses identified were as follows:

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i. project was not completed within the original contract period where 2 Extensions of Time of 643 days were approved. The approved extension of time had exceeded the original contract period; ii. the main consultant has yet to obtain approval from the Fire and Rescue Department of Malaysia even though the project had been completed in October 2011; iii. the Processing Centre in Pandan Indah, Kuala Lumpur has not been shifted to the Processing, Production and Warehouse Centre in Bangi. The delay in shifting the Centre to the new building has caused IRBM to incur rental cost of RM4.70 million as calculated from the issuance date of the Certificate of Practical Completion on 28 October 2011 till February 2013. Meanwhile, as at February 2013, utility and security service fees totalling RM505,600 had been charged as project cost since the completion of the building in October 2011; iv. payment to 4 consultants appointed in 2003 amounting to RM529,733 was an extravagance as the reports produced by them could not be used;

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v. 8 Variation Orders with an additional cost of RM3.27 million which involved changes/addition to the initial works stipulated in the contract were not approved by the Economic Planning Unit (EPU); vi. the building design was unsuitable/impractical and the quality of construction works was not satisfactory; and vii. planning on the location of Customer Service Centre was not satisfactory because IRBM took a period of one year and 9 months to decide on the location. b. In order to address the weaknesses highlighted and to prevent them from recurring in other projects, it is recommended that IRBM and the Public Works Department (PWD) take the following actions: i. IRBM should plan carefully when preparing the project brief; ii. IRBM and PWD should ensure that the main consultant is responsible for the overall planning, design, management and coordination with other consultants/agencies; iii. IRBM should obtain approval from EPU on any addition/changes to the scope of the project;

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iv. PWD should take action against the main consultant for lack of supervision on the project which resulted in poor quality of works that did not comply with the standard set; and v. PWD should closely monitor on the works performed by the contractor to prevent any major works defects.

Inland Revenue Board Of Malaysia 4. Management On Company Instalment Payment Scheme (CP204 Form) a. Under the Self Assessment System, a company is responsible to declare and pay income tax voluntarily. The Inland Revenue Board of Malaysia (IRBM) will issue Tax Estimation Form (CP204 Form) by stages according to companies account closing date. A company is required to furnish the tax estimate not later than 30 days before the beginning of the basis period for the year of assessment. Each instalment of estimated tax shall be paid on or before the due date beginning from the second month of the basis period for the year of assessment, which is on the 10th every month. The Notice of Instalment Payment (CP205 Form) will be issued to taxpayers who fail to submit the CP204 Form. Failure to comply with the schedule of estimated tax instalment payments will

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result in a tax increase of 10% which will be imposed on instalments not paid. Tax increase of 10% also applies if the difference between the actual tax payable and revised tax estimate or the original tax estimate exceeds 30% of the actual tax payable. Failure/delay to furnish the tax estimate is an offence under the Income Tax Act (ITA) 1967. Audit findings revealed that the overall management on company tax instalment payment scheme was satisfactory. However, there were several weaknesses as follows:
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CP204 Form issued to companies not liable to tax;

ii. increase in tax amounting to RM136,335 under subsection 107C(9) ITA 1967 was not imposed on companies for failure to pay tax estimate declared in the CP204 Form; iii. increase in tax amounting to RM41,193 under section 103 ITA 1967 was not imposed on tax arrears; iv. action was not taken to prosecute against 5,181 companies that failed/late in paying the CP204 compounds; v. delay in instituting legal proceedings against 61 companies which failed to pay CP204 compounds; and

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vi. delay in taking action to prosecute against 245 companies which failed to pay CP204 compounds due to time taken in allowing reminder letters to be sent. b. In order to further improve the management on instalment payment scheme, it is recommended that IRBM considers the following: i. identify the status of tax payable for each company before the CP204 Form is issued; ii. apply for additional officers in IRBM Department/Branch so that delay in prosecutions against companies which fail to pay CP204 compound could be overcome; iii. ensure that IRBM Department/Branch takes immediate prosecution against companies that failed to pay CP204 compound within the stipulated period. In this regard, supervision should be carried out by IRBM Headquarters; and iv. ensure that prosecution is not delayed because of issuing reminder letters to companies. For this purpose, duration for issuance of reminder letters and the waiting time for companies to respond should be determined.

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MINISTRY OF FINANCE Royal Malaysian Customs Department 5. Management Of Export Activities a. The Royal Malaysian Customs Department (RMCD) is responsible for the collection of indirect taxes such as import duties, export duties, excise duties, sales tax, service tax and also levy imposed on commercial and industrial activities carried out in Malaysia. RMCD also provides customs facilitations to the trading and industrial sectors as well as ensuring regulatory compliance to curb revenue leakage. Generally, Audit findings revealed that export activities were properly managed by RMCD. However, there were some weaknesses that should be addressed by RMCD as follows: i. the Standard Operating Procedures (SOP) relating to management and operation controls on the export of crude oil was incomplete and not clear, resulting in unsatisfactory physical controls on the export of crude oil; ii. there were cases where forwarding agents could still hand over customs declaration forms to the Assessing Officer; iii. a total of 9,444 K8 customs forms were still outstanding due to weaknesses in monitoring

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and matching of the customs forms by both the receiving and delivering Customs Stations; and iv. there were delays in declarations and payments of crude oil export duties. b. To ensure that export activities are managed properly, RMCD should consider the followings: i. review the SOP relating to the export of crude oil as soon as possible so that it will be up to date, relevant and clear; ii. take action against Customs Stations that allow forwarding agents to hand over customs declaration forms to the Assessing Officer; iii. take initiatives to update all outstanding K8 customs forms, identify undeclared goods and take action against applicants/agents who fail to comply with stipulated regulations; iv. ensure continuous monitoring of K8 customs forms by both receiving and delivering Customs Stations; and v. give warnings to oil companies for any delay in export declarations and payment of duties.

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Royal Malaysian Customs Department 6. Risk Management On Clearance Of Air Cargo Imports a. Clearance of imported goods by the Royal Malaysian Customs Department (RMCD) is subject to the laws set by the Government and the guidelines set by World Customs Organisation (WCO). RMCD is responsible to ensure that the movement of vessels, vehicles, aircrafts and consumer goods across national borders is in compliance with Customs laws and trade regulations. Among the strategies identified to assist RMCD in implementing its functions and duties is the enhancement of trade facilities on legal trade movement by creating an Integrated Risk Management System. Risk management can assist RMCD in identifying high-risk transactions/importers with the objectives of carrying out detailed document checks, physical inspections or post import audits to curb revenue leakages and prevent the imports of prohibited goods into the country. For the period 2010 to 2012, the total value of trade imports to Malaysia was RM1,627.411 billion and RM337.594 billion (20.7%) was via air cargo. Audit findings revealed that risk management on clearance of air cargo imports was not widely used by RMCD. Among the weaknesses found were as follows:

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i. the risk management framework of RMCD was not sufficient as well as not in line with the risk management guidelines and standards issued by WCO; ii. risk management systems and procedures were neither comprehensive nor updated; iii. insufficient personnel trained in the latest techniques of risk management as training in countries with advanced risk management system was discontinued in 2009; iv. the concept of risk management has not been fully applied as physical inspections were still conducted regularly on imported goods not identified under the risk category by the Customs Verification Initiatives (CVI) Branch; and v. monitoring programmes/reviews for continuous improvement of the risk management framework were not prepared/implemented. b. It is recommended that RMCD consideration to the following: gives due

i. establish a risk management framework and structure in line with the guidelines and standards issued by WCO; ii. provide comprehensive and updated management systems and procedures;
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risk

iii. ensure that personnel involved in risk management are trained with the latest risk management techniques from countries with advanced risk management systems; iv. ensure that the concepts of risk management are applied fully by all Air Cargo Customs Stations. In addition, cargo scanners should be provided to expedite physical inspections in accordance with the SAFE Framework of Standards To Secure And Facilitate Global Trade; v. provide appropriate monitoring and review programmes to ensure that the risk management framework could be continuously improved; and vi. review staffing requirements and redeploy staff to fill up vacancies so that risk management could be implemented throughout the country.

MINISTRY OF WORKS Public Works Department 7. Contract Administration Of PWD Projects a. Contract administration and supervision play an important role in public procurement to ensure that contractors meet their obligations under the contract signed. It is the responsibility of each
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officer to ensure that the Government gets value and maximum benefit for payment made. For the procurement of work, it should cover the scope of work specified and agreed to in the offer/contract. In addition, the work must be completed within the time specified in the contract. If contractors do not complete the work on schedule, penalties should be imposed. Based on the SKALA Statistical Report, Public Works Department (PWD) managed 633 projects under the Ninth Malaysia Plan worth RM36.740 billion. Audit findings revealed that overall, contract administration of PWD projects was not satisfactory due to weaknesses in compliance with the rules. Among the weaknesses identified were as follows: i. contract clause was not in line with the Treasury Circular; ii. inconsistency in the use of PWD standard contract forms; iii. inaccurate validity period and rate of Performance Bond/Performance Guarantee Sum; iv. insurance policy was not managed properly; v. delay in approving Extension of Time; and vi. delay in making good defects.

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b. It is recommended that PWD takes the following actions: i. ensure consistency between contract clauses and the Governments rules. ii. instruct all PWD offices in the country to be consistent in using new standard contract forms so that new rules could be applied to protect the interest of the Government and contractors; iii. enhance supervision and monitoring to ensure accuracy of all documents in order to protect the Governments interest; iv. appoint third party to repair the defects which were not repaired by the defaulting contractor. The cost involved could be charged to the Performance Bond/claim which has not been paid to the defaulting contractor; and v. provide training to officers involved in contract administration to improve their knowledge.

MINISTRY OF TRANSPORT 8. Upgrading Of Kota Kinabalu International Airport Project, Sabah

a. The Upgrading of the Kota Kinabalu International Airport Project (KKIA Project) which was situated in the district of Penampang, Sabah was to enable
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better handling of passengers and aircrafts operation. KKIA Project involved 2 packages. Package 1 was to upgrade the Terminal 1 Building in terms of increasing the floor area; passenger loading bridge; reclaim baggage carousel; open vehicle parking and aircraft parking bays. Whereas Package 2 was involved with upgrading airside improvements; Terminal 2 (LCCT) and air traffic control tower as well as the administration building of Department of Civil Aviation. The cost of Package 1 was RM720 million with a 36 month completion period starting from 21 May 2006 until 20 May 2009. Meanwhile the cost of Package 2 was RM720 million with a 36 month completion period starting from 21 April 2006 until 20 April 2009. Audit findings revealed that in general the upgrading of KKIA Project was not satisfactory because there were several weaknesses in the project implementation. However, the overall work progress of Package 1 was on schedule with 3 Extensions of Time totalling 290 days while for Package 2, the actual work progress as at 31 May 2012 was 94.3% compared to 94.2% as scheduled after taking into consideration 5 Extensions of Time totalling 1,106 days and a Supplemental Agreement of 8 months. Among the weaknesses identified were as follows:

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i. non-compliance with environmental laws and there were land acquisition problems before the project started; ii. interfacing issues between contractors of Package 1 and Package 2 in carrying out the upgrading works; iii. upgrading works did not specifications/of low quality; comply with

iv. part of the component works of Package 2 was not completed/abandoned; and v. part of the completed facilities was not utilised. b. It is recommended that the Ministry of Transport takes the following actions: i. allocate time for at least one year from the date of submission of application to the Land Administrator to acquire land for the Ministrys project implementation schedule in future. In this regard, all land acquisition process should be accelerated and project allocations should be used for the purpose appropriated; ii. give serious attention to the administration of contracts and ensure that every contract term is refined and analysed to protect the interest of the Government; iii. carry out an accurate assessment of the remaining works that contractor Global Upline
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Sdn. Bhd. failed to complete and ensure that a new contractor is appointed immediately to complete Package 2 as well as to repair low quality work; and iv. ensure that the objectives of KKIA Project are achieved based on the master plan. Among the criteria in the master plan was focusing on expansion of infrastructure in the vicinity of Terminal 1 which was the KKIA Main Terminal. Therefore, the Ministry should firmly ensure that all actions are taken systematically including urging AirAsia to move from Terminal 2 to Terminal 1.

MINISTRY OF FEDERAL URBAN WELLBEING

TERRITORIES

AND

Kuala Lumpur City Hall 9. Management Of Recreational Facility Projects In Kuala Lumpur City a. The objective of having Recreational Facility Projects in Kuala Lumpur City is to provide a beautiful, clean and tidy urban landscape with beautification design characteristics which are dynamic and comprehensive for the satisfaction of all city dwellers and tourists. These projects include maintenance of public parks, maintenance of open land space and children playgrounds as well as maintenance/trimming of trees and upgrading of
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existing landscapes. For the period 2010 to 2012, an amount of RM182.76 million has been allocated for the management of Recreational Facility Projects but only a total of RM123.32 million (67.5%) was spent till December 2012. The Department of Landscape and Recreation (JLR) of Kuala Lumpur City Hall (DBKL) is responsible for the planning, management and maintenance of urban landscapes in Kuala Lumpur City. The main components of these projects include Soft Landscape (Softscape), Hard Landscape (Hardscape) and Buildings. Audit findings revealed that the physical performance of 4 out of 5 projects audited was not satisfactory because of failure to complete the projects on schedule. The contractors involved were approved between one to three Extensions of Time with a duration period of 174 to 617 days. In addition, the management of the 5 projects was also not satisfactory due to the following weaknesses: i. no initial investigation/assessment of project sites was done; ii. the completed projects still cannot be utilised or enjoyed by the public and tourists; iii. the implementation of projects was not in accordance with the terms, conditions and specifications of the contracts;

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iv. JLR did not fully use the Landscape Guidelines issued by the National Landscape Department and other related regulations as a guide for best practices; v. JLR did not maintain inventory records for living assets; and vi. JLR did not satisfactorily manage the maintenance of landscape and recreational facilities. b. To improve the weaknesses highlighted, it is recommended that DBKL considers the following: i. initial investigation/assessment of project site should be done in advance for each future project undertaken; ii. the completed facilities should be utilised fully to avoid wastage; iii. monitoring should be enhanced during project implementation to ensure that work done is in accordance with terms, conditions and specifications stipulated in contracts; and iv. periodic maintenance should be implemented according to fixed schedule to ensure that the project could be utilised optimally. In addition, monitoring should also be undertaken to reduce vandalism and theft cases.

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MINISTRY OF EDUCATION MALAYSIA 10. Management Of 1Malaysia Milk Programme a. 1Malaysia Milk Programme (PS1M) is a continuation of the School Milk Programme (PSS) which was initiated in 1983 and implemented by the Ministry of Education (Ministry) to improve the nutritional level of primary school students, particularly in rural areas. The purpose of this programme is to build a generation which is brilliant, stronger, healthier and mentally more dynamic in the future. Under PS1M, school students will be given Ultra High Temperature (UHT) milk, which can be enjoyed by more than 3 million pupils throughout the country involving 7,733 primary schools. In early 2011, the Ministry of Finance Malaysia had approved procurement for PS1M amounting to RM188.33 million through 4 contractors. However, the actual value of the contract was RM170.93 million after the Ministry revaluated the eligibility of the milk recipients. The contractors were fully responsible for the whole process of milk supply and its safe consumption by students. Audit findings revealed that generally, the management of PS1M was not satisfactory based on the performance from January 2011 until July 2012 where supply was only 21.9% and expenditure already reached 39.7%. Other weaknesses were as follows:

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i. some terms of the contract were not complied with especially the absence of Person In Charge (PIC) or contractors representative at each milk drinking session; disposable items (milk cartons) were not disposed of; handbook was not supplied; posters were not displayed at the appropriate places; and training as well as explanation to teachers and pupils were not carried out; ii. inappropriate storage space for milk stock; and iii. delay in milk supply to few schools. b. In order to rectify the weaknesses highlighted and further improve the quality of PS1M management, the parties involved should give consideration to the following: i. the Ministry should monitor closely on the milk handling by contractors so that the milk supplied is always in good condition and safe for consumption by the school children. The Ministry should also ensure that contractors comply with terms of the contract and schools are not burdened with tasks outside their responsibilities; ii. the Ministry should review the terms and conditions of the contract which are unreasonable and vague by taking into account
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the number and location of the primary schools in the programme, the ability of contractors to provide the PIC at each milk drinking session in each school as well as logistics and facilities for milk storage, thereby enabling contractors to plan more effectively their financial strategies, human resources, equipment and logistics as well as comply with the terms of the contract; iii. the contractors should provide information and education on a regular basis to teachers/ students involved with PS1M. For example, visual training (CD) could be presented during the milk drinking session. Appointment of PIC should be proper and valid for effective supervision and monitoring. In addition, posters should be prepared and displayed at appropriate places so that they could be easily seen by pupils and teachers; iv. the Ministry should prepare standardised and up-to-date record for all milk stock received and distributed for control and monitoring purposes; v. the Ministry should identify safe and appropriate space for milk storage in schools to prevent milk contamination and theft; and vi. the Ministry should impose fines for delay in milk supply and claim from the relevant contractor.

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11. Construction And Equipment Procurement Of Preschool Project a. Education is one of the 6 National Key Result Areas (NKRA). The aspirations of Education NKRA are to improve students performance and to widen access to quality education. The Ministry of Education (Ministry) has set 4 focus areas under the Education NKRA and one of them is preschool education. The Ministry has identified 7 thrusts to strengthen the governance and delivery of quality preschool education. One of the thrusts is to increase the number of preschool classes in areas of high demand, urban slums, rural and remote areas. For this purpose, the Ministry has embarked on an Preschool Expansion Project to build and complete the preschool buildings and other related facilities including procurement of preschool equipment. The project was implemented in three phases involving 1,237 schools and 1,330 classes. Implementation of the project includes three categories namely New Build, Renovation, and Complete Build. Audit findings revealed that the performance of the Preschool Expansion Project for the New Build category was less than satisfactory because 19 (82.6%) of the 23 projects were delayed between 44 to 571 days. Meanwhile, the performance of 7 Renovation projects audited was good because the projects were completed on

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schedule. However, there were still weaknesses in the management of this project which could affect its objectives as follows: i. there were weaknesses in the project planning such as distribution of the number of projects to contractors which did not take into consideration the distance between the locations of projects under a same sub package and the stipulated completion period of projects was not suitable; ii. selection of site and project category was not done with care, thereby affecting project cost and its completion period; iii. building design for the New Build Phase 1 projects and procurement of equipment were not in accordance with the guidelines issued by the Curriculum Development Division in 2008; iv. there were preschool equipment/works which did not comply with specifications and were of low quality; v. 26 units/sets of equipment were not supplied to 9 preschools, 250 units/sets of equipment were not completely supplied to 7 preschools and equipment were not supplied to 5 preschools as the preschool buildings were not completed yet; and

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vi. poor contract management for 8 out of 19 contracts as they were signed late between 34 and 146 days. In addition, the rules pertaining to the Integrity Pact were not fully complied with. b. In order to overcome the weaknesses of the Preschool Expansion Project as well as to ensure that the Government obtains value for money, it is recommended that the parties involved take the following actions: i. the Ministry should review the method used in the distribution of projects to contractors so that it is more reasonable and projects could be completed on time. The time lag could be shortened if the planning, implementation and distribution of the number of projects to contractors take into consideration the ability of contractors, project location connection difficulties, weather and completion period of project. In addition, close monitoring and effective coordination among the Ministry, consultants and contractors in managing this project could also ensure that it is completed as scheduled; ii. the Ministry should ensure that all preschool classes were designed according to specifications prescribed so that teaching and
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learning sessions could be conducted in a conducive environment and all teaching and learning space could be fully utilised. The floor plan of the renovation and construction of preschool buildings and the equipment specification list should be forwarded to the State Education Department (JPN) and District Education Office (PPD) involved for reference; iii. consultant/JPN/PPD should ensure that the work performed by the contractor complies with the scope of work/contract specifications. Works which have been paid but not performed or not in accordance with specifications should be carried out or rectified immediately or action should be taken to deduct the cost of these works from the final payment to contractor; iv. the Ministry should ensure that all defects and unsatisfactory construction works are identified and rectified within the stipulated period. This is to prevent the Government from incurring losses relating to the repair costs. While for projects with expired Defects Liability Period, the Ministry should take proactive steps to provide adequate funds and appoint contractors for maintenance work; v. the Ministry should ensure that all equipment are tested and commissioned by consultants,

35

contractors and JPN/PPD/school during the project handover. List of supplied equipment specifications should be provided to enable the school to ascertain that equipment received meet the required specifications, in good condition, complete and safe to use. It is also to enable the school to maintain equipment records as prescribed in the Treasury Circulars No. 5 of 2007 and No. 5 of 2009; and vi. the Ministry should expedite the signing of contracts and complete them with dates. Regulations on Integrity Pact should also be fully complied with to protect the Governments interest. 12. Management Of Building And Compound Cleaning Services At Schools/Educational Institutions a. The Ministry of Education Malaysia (Ministry) hired private companies to perform Building and Compound Cleaning Services (KBK) at schools/educational institutions so that good quality cleaning services could be provided in the premises. Among others, its objective is to form a school environment which is clean, cheerful and healthy for teachers and students so that a conducive teaching and learning atmosphere could be created. Audit findings revealed that the
36

management of KBK was not satisfactory. Among the weaknesses found were as follows: i. improper contract management where 6 out of 20 contracts audited were signed late between 28 to 81 days and 13 companies were late between 3 to 145 days in submitting their Performance Bonds; ii. terms of the contract were unclear/incomplete when the number of machines/equipment did not follow the standard norms; employees profile information was provided only upon request and there was no scheduled monitoring by supervisors; iii. companies did not comply with the terms and conditions of the contract resulting in poor and unsatisfactory service; iv. improper payment was made for cleaning services where deductions were not made for absent workers; and v. periodic monitoring was not carried out. b. To overcome the weaknesses highlighted and to enhance efficiency in the management of KBK services, it is recommended that all parties involved take the following actions:

37

i. the Ministry should procure KBK services in accordance with the regulations set by the Government. Warning or revocation actions should be taken against companies which failed to submit the Performance Bonds within the stipulated period; ii. the Ministry should review the contract clauses which are not clear and not in favour of the Government. Details should be provided to avoid confusion and misinterpretation so that enforcement could be implemented more effectively; iii. the Ministry should prepare video documentary to provide better understanding for the District Education Offices (PPD)/schools on how KBK services should be rendered by companies; iv. the Ministry/State Education Department (JPN)/PPD/school should take stern actions against companies which do not comply with the terms and conditions of the contract by imposing fine and reporting low quality service to the authorities. The Ministry may then terminate and blacklist companies that still fail to comply with the contract and improve the performance of their services; v. the Ministry should investigate all claims made by companies and in the event of reduction of

38

working time, deduction should be made. In the case of excess payment, refund claims should be made to companies and appropriate action should be taken against those responsible; vi. the Ministry should devise a more efficient claims processing mechanism and ensure that payments could be made within the time stipulated. Guidelines on the imposition of fines in case of breach of terms and conditions of contract should be issued as reference for JPN/PPD/school for uniformity of implementation; and vii. JPN/PPD should perform scheduled and surprise checks to ensure that companies perform their services satisfactorily. Monitoring on schools may also clarify any confusion that may arise in the interpretation of contract at school level.

MINISTRY OF HEALTH 13. Management Of Nursing Training Programme a. The Ministry of Health Malaysia (Ministry) was responsible for implementing the nursing training programme to meet requirement of current and future Government hospitals and clinics. In 2012, the Ministry had 11 Nursing Colleges and 5
39

Colleges of Allied Health Sciences with a total of 8,489 students. Whereas from 2001 to 2012, a total of 3,409 nursing students were stationed at Private Nursing Colleges through outsourcing programmes with MAHSA College, SEGI, PUSRAWI and MASTERSKILL costing RM194 million (excluding scholarships and student allowances). Two training programmes were offered at Nursing College which were basic nursing programme (diploma programme) that was conducted within 3 years for appointment of nurses and specialization programme (advanced diploma) that was conducted within 6 to 12 months for serving nurses. Audit findings revealed that the overall nursing training programme conducted by the Ministry was satisfactory. However there were several weaknesses as follows: i. vacant posts were not filled and appointment of instructors did not comply with the Nursing Board of Malaysia guidelines; ii. payment for sewing uniforms and allowances of outsourcing students were not according to the contract; iii. there was no guidelines on debtors control; iv. no approval was given by the authorities for sewing fees, uniform allowances and student travelling claims;
40

v. facilities and teaching aids were obsolete and inadequate, and vi. weaknesses in the contract for security control. b. In order to overcome the weaknesses and ensure that the nursing training programmes are carried out properly and efficiently, it is recommended that the Ministry considers the following actions: i. take immediate action in allocating and posting of instructors; ii. ensure that conditions on the appointment of instructors are consistent with the requirements of the Civil Service Commission and the Nursing Board of Malaysia to ensure standard quality teaching for all institutions that offer nursing programmes in Malaysia; iii. require the Private Nursing Colleges involved in outsourcing programme to repay the value of the uniform that did not comply with the provision of the contract; iv. establish latest guidelines and procedures on debtor management and take appropriate action to address the outstanding debt; v. ensure that allowances and benefits provided to students are approved by the authorities;

41

vi. give due attention to facilities, infrastructure and teaching aids; and vii. thoroughly review the terms of contract to ensure that the Governments interest is protected before each contract is signed.

14. Management Of Ambulance a. Ambulance service is crucial in managing and facilitating emergency and accident cases. Every hospital and clinic should provide quality and systematic ambulance service to assist patients with primary care in order to promote early recovery, prevent serious complication and ultimately ensuring quality health care. Ambulance management in hospital is monitored by the Emergency and Ambulatory Services Unit, Medical Development Division, Ministry of Health Malaysia (MOH) while the management of ambulance in clinic is monitored by the Primary Health Branch, Family Health Development Division, MOH. Meanwhile, the maintenance and repair of ambulance are conducted by a concession company which is monitored by the Engineering Services Division, MOH. Whereas the ambulance maintenance in clinic is administered by the related District Health Department/Division. Audit findings revealed that the overall performance of the
42

management of ambulance service was satisfactory because most of the weaknesses raised in the 2006 Auditor General s Report did not recur and actions had been taken except that the Key Performance Indicator (KPI) for dispatch time could not be confirmed. However, there were other weaknesses as follows: i. no formal contract was drawn up procurement of ambulance at state level; for

ii. appointment of the Technical Specification Committee was not done in writing; iii. rental agreement for ambulance boat service was not comprehensive and there was improper control on the boat usage form; iv. procurement contracts between 21 to 157 days; were signed late

v. contract clause were not amended properly; vi. investigation on accident cases involving ambulances were not resolved by the Royal Malaysian Police which had been reported between 116 to 1,048 days; and vii. the concession company took a long period between 20 to 118 days to do maintenance work on the ambulances.

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b. In order to overcome the weaknesses highlighted, it is recommended that the Ministry considers the following actions: i. study on a more appropriate mechanism of performance measure including the need to achieve KPI on time taken to reach accident scenes so that patients safety and health could be assured; ii. ensure that procurement and rental for ambulance are properly managed as well as draw up a more comprehensive agreement; iii. create a formal contract and expedite the signing process of the agreement to protect the Governments interest as well as complying with the financial regulations on procurement procedure; iv. ensure that the amendments to contract are done properly and checked by the Attorney General or the Legal Advisor; v. enhance collaboration with relevant parties to ensure that accident cases are solved immediately to facilitate repairs, insurance claims and disposal process; and vi. monitor on the maintenance of ambulance.

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MINISTRY OF GOVERNMENT

HOUSING

AND

LOCAL

Fire And Rescue Department Of Malaysia 15. Management Of Fire Vehicles And Equipment a. Fire vehicles and equipment are crucial in ensuring successful rescue operations. All fire vehicles and equipment should always be ready for use, utilized optimally as well as maintained properly, efficiently and effectively in providing fire rescue services. Fire vehicles and equipment of the Fire and Rescue Department of Malaysia (FRDM) include fire engines, special vehicles, utility vehicles, marine and aircraft vehicles. As at September 2012, FRDM had a total of 3,164 units fire vehicles and equipment with various functions which were worth RM1.397 billion. For the period 2009 to 2012, a total of RM1.005 billion was spent on procurement of fire vehicles and equipment while RM206.76 million was spent on the maintenance of fire vehicles and equipment. Audit findings revealed that the overall management of FRDM fire vehicles and equipment was satisfactory. However, there were still some weaknesses as follows: i. performance of air service and turn out of ground service did not achieve the norms set; ii. fire vehicles and equipment of 53 (96%) Fire Stations did not meet the standard requirements;
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iii. distribution of fire vehicles and equipment was not in accordance with the initial plan; iv. Bertam Air Base was not fully utilised and the quality of construction was not satisfactory; v. weaknesses in controlling the movement of operation equipment in state FRDM and fire stations; vi. management of operation/scuba equipment and spare parts of fire vehicles and equipment was not satisfactory; vii. maintenance of vehicles and equipment was not satisfactory; and viii. disposal of fire vehicles/equipment/spare parts of aircrafts was not satisfactory. b. In order to ensure that the objectives of management of fire vehicles and equipment achieved and the Government obtains value money, it is recommended that FRDM takes following actions: the are for the

i. review the turn out norms and requirements based on factors such as limited storage space, existing staff posts, fire stations with outworn vehicles and their coverage areas; ii. ensure that each application for construction of new air base/fire station corresponds to
46

applications for staff and facilities so that facilities provided could be used optimally; iii. provide a suitable mechanism for controlling the movement of operation equipment and scuba to facilitate detection and avoidance of loss; devise a suitable mechanism to control the movement of operation equipments and scuba appliances to facilitate tracking and prevent loss; iv. monitor and carry out periodic checks to ensure that all distribution, registration, maintenance of records and disposal are properly done; v. provide sufficient storage space for all assets/ inventories; vi. set a time frame for repairs so that vehicles/ equipment/appliances are always in good condition and ready for optimal use; vii. conduct periodic training for officers of state FRDM, Zone offices and Fire Stations on assets management and storage procedures; and viii. provide sufficient posts for mechanic to ensure that all repair and maintenance works could be carried out properly in accordance with the prescribed norms.

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MINISTRY OF WOMEN, FAMILY AND COMMUNITY DEVELOPMENT 16. Management Of Financial Assistance To NonGovernmental Organisations a. The Ministry of Women, Family and Community Development (Ministry) through three agencies namely the Department of Social Welfare (JKM), the Department of Women's Development (JPW) and the National Population and Family Development Board (LPPKN) was responsible for providing a variety of social development-oriented programmes related to welfare, protection, caregiving, community recovery, family and training. Recognising the fact that the Ministry was unable to implement its own programmes of social development due to several constraints encountered, the cooperation and participation of Non-Governmental Organisations (NGOs) were required for the success of these programmes. Among the incentives provided by the Ministry to encourage NGOs to undertake social welfare services was to give financial assistance consisting of grants and Special Treasury Assistance (BKP). A similar Audit was conducted and its issues were raised in the 2006 Auditor General s Report. Audit findings revealed that providing financial assistance to NGOs in general was in line with the Government's intention to allow NGOs to assist the

48

Government in strengthening family institution and addressing social ills. However, the management of providing financial assistance to NGOs was poor as the weaknesses raised in 2006 were not fully resolved. Among the weaknesses noted were as follows: i. distribution of grants/BKP did not meet the conditions set where payment was made to NGOs before the agreement was signed; ii. usage of Ration Grant, Administration Grant and Special Students Allowance (Persons with Disabilities) by NGOs did not comply with the conditions stipulated in the agreement and the guidelines issued by the Department of Social Welfare; and iii. surplus of grants/BKP which was not used by NGOs was not recouped as stipulated in the agreement. b. To overcome the weaknesses highlighted and to prevent it from recurring in the future, it is recommended that the Ministry and the agencies involved in the management of Government funding to NGOs take the following actions: i. enhance monitoring based on the mechanism set to ensure that NGOs comply with all the

49

conditions stipulated and avoid misuse of financial aid; ii. enforce fully the terms of agreement and take stern action against NGOs which fail to comply with the prescribed conditions; iii. recoup the balance of the financial aid which was not spent by NGOs in accordance with the terms of agreement; and iv. review the main resolutions of this activity such as scope of allowable expenses so that the objectives of providing financial assistance to NGOs are fully achieved. MINISTRY OF DEFENCE 17. Management Of Dry Ration Supply For Royal Malaysian Navy a. Supply of rations for the Malaysian Armed Forces includes the supply of dry/fresh ration and food catering. Based on the Food Supply Technique Instruction, ration is defined as the food entitlement of a person for a period of 24 hours beginning midnight on that day until midnight the next day. The Royal Malaysian Navy (NAVY) prepares and cooks its own food and its supply of ration is based on the Military Ration Measure as stated in the Malaysian Armed Forces Council Order Vol. 7 Year 2003. The Procurement Division of the Ministry of
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Defence is responsible for managing the contract on supply of dry ration needed by NAVY. Audit findings revealed that the management of dry ration supply for NAVY was not satisfactory. Among the weaknesses identified were as follows: i. contract value was very high compared to actual needs; ii. contract was signed late; iii. terms and conditions of contract were not complied with/executed; iv. a ration store has not been constructed; v. cleanliness and arrangement of ration at the user store/galley were not suitable; vi. stock of ration had expired; and vii. maintenance of ledger records and adherence to the financial regulation were not satisfactory. b. In order to ensure that the management of dry ration supply for NAVY is done properly, efficiently and prudently, it is recommended that the parties involved take the following actions: i. revise the contract value for the supply of dry ration for NAVY because actual payment made was much lower compared to the value of the contract;

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ii. ensure that contracts are signed within stipulated period to ensure that Governments interest is protected and contractors involved are legally bonded to the contract terms and conditions;

the the the fulfil

iii. take prompt actions against contractors who do not adhere to the terms and conditions of contract so that the supply of ration is based on the predetermined quality; iv. construct a ration store and fill up the vacant posts at 3rd Area Logistic Depot (DLW3) to ensure that it functions efficiently and effectively; v. ensure that cleanliness, safety and storage of ration are according to the needs; and vi. ensure that financial regulations are always complied with. Further investigation and necessary action should be taken against officers who violate financial regulations.

MINISTRY OF HOME AFFAIRS 18. Construction Of CIQ Complex And Jetty At Melaka River Mouth, Melaka a. The construction of CIQ Complex and Jetty at Melaka River Mouth (Muara Sungai Melaka) was a project under the Ninth Malaysia Plan. The objective of the project was to build a new
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Customs, Immigration and Quarantine (CIQ) Complex and jetty to replace the old complex and jetty. Dinamik Maju Corporation Sdn. Bhd. was appointed on 2 February 2010 as the initial contractor to implement the project at a cost of RM32.89 million. However, the contract was mutually terminated on 17 September 2008. Pesona Metro Sdn. Bhd. was then appointed as the new contractor on 28 July 2010 to complete the project. Audit findings revealed that overall the construction of this project was satisfactory. However, there were several weaknesses as follows: i. issue on acquisition of Plot C was not resolved before construction; ii. the required Industrialised Building System (IBS) score was not achieved; iii. the objective of Class F Contractor Involvement Programme was not achieved; iv. construction works did not specifications/regulations; and v. works quality was not satisfactory. b. It is recommended that the Ministry of Home Affairs (MOHA) and the Public Works Department (PWD) take the following actions: comply with

53

i. MOHA should ensure that the acquisition of construction land is settled before implementing the project to prevent any future complications; ii. PWD should ensure that the required IBS score is fulfilled so that the construction quality and productivity could be improved; iii. PWD should ensure that the requirement of Class F Contractor Involvement Programme is met so that its objective could be achieved; and iv. PWD should ensure that contractor works are satisfactory and carried out in accordance with specifications and regulations. Royal Malaysian Police Force 19. Procurement Of Beechcraft King Air 350 Aircraft For Air Operation Force a. Royal Malaysian Police Air Wing Unit was established in February 1979 through a Cabinet decision that all Police Air Wing aircraft should be registered as civilian aircraft. The primary purpose of this Unit is to carry out patrols on Malaysian waters; search and rescue; sending small teams to the crisis areas and provide air services to all departments under the Ministry of Home Affairs (MOHA). On 1 March 2012, the name of Royal Malaysia Police Air Wing Unit was officially changed to Air Operation Force (PGU). At the beginning stage of its inception, PGU used single
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engine aircraft for its police operations. However, the aircraft had several weaknesses such as the flight patrol range and flight operations at night were limited. There was also no pressurised cabin that could expose the flight crew to oxygen deficiency. In September 2005, PGU agreed to the proposal made by MOHA for the acquisition of Beechcraft King Air 350 which were more powerful and sophisticated. This procurement was made through direct negotiations with Hawker Pacific Airservices Ltd via its agent EZ Aviation Sdn. Bhd. The contract price for the purchase of 5 units Beechcraft King Air 350 was USD58.25 million. Audit findings revealed that the overall procurement of Beechcraft King Air 350 was less than satisfactory. Among the weaknesses identified were as follows: i. breach of conditions in the contract; ii. delay in supplying aircrafts; iii. the objectives of providing training to pilots and engineers were not met; and iv. shortage of manpower especially pilots and engineers. b. It is recommended that MOHA/PGU considers the following actions:

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i. ensure that payments made to the contractor comply with the conditions as stipulated in the contract; ii. ensure that clauses in contract relating to Ownership Take Over And Risk protect the Governments interest to avoid losses in the procurement process; iii. impose Liquidated and Ascertained Damages against the supplier for late delivery of special operations aircraft and equipment in accordance with the conditions as stipulated in the contract. Action should also be taken to terminate the contract if the supplier fails to deliver the aircrafts as required; iv. ensure that detailed information on the cost/pricing of each procurement is clearly stated so that the actual price of acquired goods or services rendered could be identified; v. ensure that the supplier gets recognition from the Department of Civil Aviation (DCA) for pilots who have attended training as pilot instructor; vi. take proactive action to ensure that PGUs engineers and mechanics pass additional modules that have been set by DCA; vii. ensure that plans are set for engineers to acquire and possess necessary qualifications

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so that they can carry out and certify aircraft maintenance works; and viii. study the needs of posts for pilots and engineers and ensure that relevant parties give due attention to such posts.

The Registry Of Societies Malaysia 20. Management Of Societies Registration Activity a. The Registry of Societies of Malaysia (ROS) was established on 1 September 1949 with the enforcement of Societies Ordinance 1949. This department took over the duties of registration and enforcement of societies which were carried out by the Trade Union Office prior to this. The functions of ROS, among others, are to administer and enforce the Societies Act 1966, Societies Regulations 1984 and policies pertaining to societies; control and supervise the activities of societies so as not to become incompatible with peace, welfare, security, public order, decorum or morality; and to offer advisory and counselling services related to the management of societies as well as on how to manage and keep registration records of registered societies. In line with these functions, ROS is responsible for registering and monitoring the movement and activities of societies throughout the country. This is to ensure that societies do not contravene their constitutions
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which can compromise security and public order and also the laws of the country. Audit findings revealed that the overall management of the activities of societies was less than satisfactory. Among the weaknesses identified were as follows: i. delays in registration; approving applications and

ii. the Registry of Societies Electronics System which was developed could not be fully utilised; iii. lack of monitoring and control in the submission of annual returns and inspections with/without notice; iv. the record of complaints was not accurate and updated and there were delays in conducting investigations on complaints received; and v. delays in gazetting deregistered societies. b. It is recommended that ROS gives consideration to the following actions: due

i. take immediate action to deregister those societies which contravene the Societies Act 1966 or their own constitutions; ii. make a decision on the status of applications and approve the applications for registration of societies within the stipulated time frame;

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iii. ensure that the system which has been developed is capable of helping the department to manage societies more efficiently; iv. issue orders and instructions based on the Societies Act 1966 to those societies which fail to send their annual returns or send their annual returns after the due date; v. prepare a planned schedule and conduct inspections with and without notice on registered societies; vi. conduct investigations on complaints received within the stipulated time frame; vii. gazette societies which have been deregistered within the stipulated time frame; viii. re-examine the job structure in all states so that control and monitoring of societies could be further improved; and ix. emphasize on courses and training related to the management of societies for officers and staff directly involved.

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PART II - MANAGEMENT OF THE GOVERNMENT COMPANIES

21. Pendinginan Megajana Sdn. Bhd. a. Pendinginan Megajana Sdn. Bhd. (Megajana) was established on 1 September 1998 and is a subsidiary of Cyberview Sdn. Bhd. (Cyberview) with an authorised capital of RM50 million and paid up capital of RM26.42 million. Previously, the shareholders of Megajana were Seseni Energy Services Sdn. Bhd. (51%) and TNB Energy Services Sdn. Bhd. (49%). On 1 March 2007, Cyberview signed a Share Sale and Purchase Agreement with the previous shareholders to acquire 100% of Megajana shares at RM2. Subsequently Cyberview sold 49% stake in Megajana to Cofely Malaysia Sdn. Bhd. and signed a Sale and Purchase Agreement on 23 November 2012 and Shareholders' Agreement on 17 December 2012. Megajana is the only district cooling service provider in Cyberjaya and its main activity is to conduct business in developing, owning, operating, maintaining, promoting, selling, managing and servicing the District Cooling System. The Town and Country Planning Department of Peninsular Malaysia in its Physical Planning Guidelines for Multimedia Super Corridor
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encouraged the usage of District Cooling System (DCS) concept in Cyberjaya to make it a world class Cyber city. Megajanas major income is from payment of bill issued to building owners on a monthly basis based on Chilled Water (CW) consumption and declared capacity. Audit findings revealed that the companys financial performance for the financial years 2009 to 2011 was good as the company recorded profit for 3 consecutive years. Overall, the performance of its activity was also good whereby the company was able to meet the customers' needs based on the feedback received from its customers. However, there were weaknesses in the management of its activities, financial management and corporate governance as follows: i. measurement used to evaluate the performance of key performance indicators (KPI) was different for the years audited. This complicated the yearly comparison on the trend of achievement for each element/measure; ii. weaknesses in the management of activities such as record on maintenance works carried out was not complete; Chill Water Purchase Agreement (CWPA) was not renewed; customer complaints were not recorded systematically; no Certificate for Machinery Inspection from the Department of Occupational
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Safety and Health. In addition, 2 units of Power Transformer costing RM2.54 million which were purchased in 2010 could not be used because there was no Tenaga Nasional Berhad 33kV substation in Cyberjaya; and iii. financial management and corporate governance did not comply with regulations such as no Standard Operating Procedure (SOP) related to asset management and its principal activities; the Board of Directors did not hold meeting as prescribed by the Treasury Circular No.12 of 1993; no special agenda relating to Megajana in Cyberview Audit Committee meetings; no internal audit carried out for the period 2009 to 2012; dividend was not paid even though the company made profit for three consecutive years; there were no training plans and training was not given to the employees; officers involved in the committees of quotations and tenders were not appointed in writing; payment voucher was not signed by the authorised officer; asset register was not updated; and fixed assets were not labelled. b. In order to overcome the weaknesses, it is recommended that the parties involved take the following actions:

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i. the management should set a consistent element/method of measurement to assess the actual performance of Megajanas KPIs each year; ii. the Board should ensure that Megajana management complies with SOP and maintain a complete record to ensure ongoing quality service to customers; iii. the management and Board of Megajana/ Cyberview should ensure that the supply of 33kV power is carried out as planned so that the national agenda in Cyberjaya could be achieved; iv. the Cyberview Audit Committee should set an agenda relating to Megajana and other Cyberview subsidiaries in its Audit Committee meetings as well as ensuring that the Cyberview Internal Audit Unit plans and implements a comprehensive audit on Megajana on a regular and periodic basis; v. the management should set training policies, plan annual training and prepare relevant SOPs to improve employees knowledge and skills on an ongoing basis; vi. the management should ensure that Megajana procurement process is carried out as prescribed by issuing written appointment to its
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officers to represent in any committee so that the interest of the company could be protected; vii. the management and Cyberview Internal Audit Unit should regularly monitor the payments and expenses process so that internal controls could be improved; and viii. the management should set a more comprehensive guideline for the control of assets; perform asset inspection/verification; ensure that asset records are regularly updated; assets are appropriately labelled to avoid loss so that company assets are safeguarded.

22. Sarawak Hidro Sdn. Bhd. a. Sarawak Hidro Sdn. Bhd. (SHSB) was known as Bakun Hidro Sdn. Bhd. prior to April 2000. It was established on 24 January 1994 with a paid up capital of RM1.156 billion. A 99% wholly owned by the Minister of Finance Incorporated, SHSB was entrusted to develop and manage the Bakun Hydroelectric Project (Bakun Project) after the Government decided to acquire this project in November 1997 from Ekran Berhad which was not interested in pursuing the project due to the economy downturn. The principal activities of SHSB include the development of the Bakun
64

project and being an environmentally friendly energy supplier. The Bakun project was implemented under 3 main packages which were civil work (CW), electro-mechanical (EM) and transmission line (TR). In August 2011, Bakun project began generating power after the Power Purchase Agreement was signed between SHSB and Syarikat Sesco Berhad (SESCO) on 1 June 2011. Audit findings revealed the following: i. overall financial performance was satisfactory where the company generated profit and showed a positive cash flow position for 3 consecutive years (2009 to 2011). However, the net profit in 2009 and 2010 was contributed by other income, of which 95% was generated from interest earned on short term deposits. Financial ratios were satisfactory and the company carried out the activities with external funding; ii. performance of activities was not satisfactory as there was delay in 4 major work packages where the contractor was approved one to 3 Extensions of Time ranging from 555 to 1,403 days. In addition, 4 units turbine under ElectroMechanical work package (EM2) could not be completed on schedule as stipulated in the Power Purchase Agreement and there was

65

consumption shortfall for the January, July and August 2012;

months

of

iii. weaknesses in the project management such as delay in signing the contract; risk of loss due to extension of time and expired performance bond. In addition, delay in completing the Civil Works Package 2 (CW2) caused various claims from Electro-Mechanical contractors due to increase in cost of materials and labour. As at December 2012, SHSB had paid a total of RM375 million (86.9%) from the total claims of RM431.59 million which had been approved by the Board of Directors and the Ministry of Finance; and iv. financial management and corporate governance were satisfactory except that the companys strategic planning and standard operating procedures for contract management were not prepared yet. There were also weaknesses in updating the company asset register; b. In order to further improve the performance of business activities and corporate governance, it is recommended that the parties involved take the following actions: i. the Board of Directors of SHSB should regularly and closely monitor the projects undertaken
66

from time to time so that objectives and benefits targeted are achieved; ii. the management of SHSB should ensure that short and long term strategic plans are prepared so that the direction of the company could be determined; and iii. the management of SHSB should urgently prepare the standard operating procedure to ensure its contract/project management is done in a consistent and proper manner.

23. Halal Industry Development Corporation Sdn. Bhd. a. Halal Industry Development Corporation Sdn. Bhd. (HDC) which was established on 18 September 2006 was wholly owned by the Ministry of Finance Incorporated, Malaysia (MoF) with a paid up capital of RM95 million. The authorised capital was RM100 million. The Federal Government through MoF held the majority share with 99.9% stake while the Federal Lands Commissioner had 1 share of RM1. HDCs main objectives were to integrate the halal industry of the country as the foundation of a global halal community; improve the certification process; set up the Halal Support Centre and introduce the concept of Halal Malaysia. HDC was established to lead all the
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Government's initiative in coordinating the development of the halal and economic growth as a whole and to promote Malaysia as an international halal hub. The roles and responsibilities of HDC as set by the Government were divided into three strategic divisions namely the Halal Industry Development, Halal Integrity as well as Halal Branding and Promotion. Audit findings revealed the following: i. revenue performance in 2011 improved after experiencing a significant decline in 2010 compared to 2009. The main income was deposit interest from banks/financial institutions and rental from exhibition booths. The expenditure also showed a declining trend from 2009 to 2011. HDCs cash flow position indicated a downward trend. This was mainly due to the fact that HDC did not generate cash flow from operating activities from 2009 to 2011; ii. performance of activities as a whole was not satisfactory and should be given due attention by the Board of Directors as the development of the halal industry could not be implemented as planned; activities were not properly planned; part of the work under the Government assistance programmes could not be

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implemented within the period stipulated; activities undertaken did not achieve the objectives set; expenses for organising halal activities were not done properly; lack of monitoring and part of the work was not fully documented; and iii. there were still weaknesses in the financial management and corporate governance which needed to be resolved in particular weakness in payment even though the same issue was raised in 2009. b. In order to ensure that HDC achieves the objectives of its establishment, it is recommended that parties involved consider the following actions:
i.

the management of HDC should create or review processes, procedures and mechanisms of implementation for all halal programmes to ensure that they could be executed efficiently and effectively as well as protect the interests of the Government; established financial regulations in order to have good governance;

ii. the management of HDC should comply with all

iii. MoF

should review HDCs status as a Government company as HDC is not profitoriented and requires funds from the
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Government to implement its principal activities; and

iv. the Ministry of International Trade and Industry

should continuously enhance monitoring on the distribution of allocations and expenditures performance as specified in the service agreement with HDC so that the development budget is spent according to plan. 24. Technology Park Malaysia College Sdn. Bhd. a. Technology Park Malaysia College Sdn. Bhd. (TPMC) was established on 18 August 1998 with a paid up capital of RM15 million. TPMC is wholly owned by Technology Park Malaysia Corporation Sdn. Bhd. (TPM) with the mandate to form a college. The main activity is to provide a place of learning for higher education in biotechnology and biomedical science, engineering as well as business management. Courses offered are twinning degree programmes with foreign universities; diplomas; certificates; and short courses. TPMC also carries out high quality technical training such as human capital development and industry skills enhancement programmes. Audit findings revealed the following: i. the company's financial performance was satisfactory with operating profit for 3 consecutive years;
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ii. TPMC activities were in accordance with the mandate given except that there were not enough students pursuing studies in the college; delay in developing the College Management System (CMS) and the Loan Fund was used for other purposes; and iii. the management and corporate governance of TPMC were generally satisfactory. b. In order to ensure that TPMC achieves the main purpose of its establishment which is providing learning for higher education, it is recommended that the management of TPMC considers the following:
i.

take proactive action to ensure that students graduated are marketable and employable; more students as planned; and

ii. review and set marketing strategies to attract iii. increase the number of students pursuing

studies in the college to create a good image for the college and to help reduce the operating costs.

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POSTSCRIPT

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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 Governments interest, consultants of design and build projects need to be appointed by the Government;
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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, Tenaga Nasional Berhad, Water Supply Department, Department of Town and Country Planning, Department of Irrigation and Drainage, Fire and Rescue Department 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; iv. 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;

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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 Governments 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: - 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
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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/Chief Executives 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 by the Ministries/ Departments/Government Companies 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 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

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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 Governments 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 Result Areas (NKRA).

National Audit Department Putrajaya 25 March 2013

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