NATIONAL AUDIT DEPARTMENTMALAYSIA

AUDITOR GENERAL’S REPORTSERIES 3

2012ON THE AUDIT OF THE ACTIVITIES OF FEDERAL

STATUTORY BODIES AND THE MANAGEMENT OF SUBSIDIARY COMPANIES

(SYNOPSIS)

NATIONAL AUDIT DEPARTMENTMALAYSIA

AUDITOR GENERAL’S REPORT 2012

SERIES 3ON THE AUDIT OF THE ACTIVITIES OF FEDERAL

STATUTORY BODIES AND THE MANAGEMENT OF SUBSIDIARY COMPANIES

(SYNOPSIS)

CONTENT

PREFACE INTRODUCTIONSYNOPSIS

PART IMANAGEMENT OF FEDERAL STATUTORY BODIES ACTIVITIES

1. INTRODUCTION

2. UNIVERSITI MALAYSIA TERENGGANU - Management on the Procurement Of Research And Training Vessel RV Discovery

3. SOCIAL SECURITY ORGANISATION - Management of Contributions Collection

4. PILGRIMS FUND BOARD - Management of Hajj’s Operating Activities

5. COUNCIL OF TRUST FOR THE PEOPLE - Management of Skill And Technical Equipment

PART IIMANAGEMENT OF FEDERAL STATUTORY BODIES SUBSIDIARY COMPANIES

6. INTRODUCTION

7. THE FINANCIAL PERFORMANCE OF SUBSIDIARY COMPANIES

8. MANAGEMENT OF KOLEJ KETENGAH SDN. BERHAD - Subsidiary of the Terengganu Tengah Development Authority

9. MANAGEMENT OF PENGANGKUTAN AWAM PUTRAJAYA SDN. BERHAD - Subsidiary of the Putrajaya Corporation

10. MANAGEMENT OF RISDA SEMAIAN DAN LANSKAP SDN. BERHAD - Subsidiary of the Rubber Industry Smallholders Development Authority

POSTSCRIPT

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CONTENT

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PREFACE

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

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

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

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

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

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

follows:

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

the Federal Statutory Bodies for the year concerned show a true and fair view and its

accounting records have been properly maintained and updated accordingly.

1.2 Financial Management Audits – to evaluate whether the financial management

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

regulations.

1.3 Performance Audits – to evaluate whether the activities of the Federal

Statutory Bodies have been implemented efficiently, economically and achieved its

desired objectives.

1.4 Management Audits Of Federal Government Companies – to evaluate

whether the subsidiary companies of the Federal Statutory Bodies have been

managed properly.

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

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

to implement 4 initiatives namely tabling of the Auditor General’s Report in every

Parliament session. The objectives of tabling my Report on the Activities of Federal

Statutory Bodies and Management of Subsidiary Companies in each Parliament session

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

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

enhance the public perception positively. My Report on the Activities of Federal

Statutory Bodies and Management of Subsidiary Companies Year 2012 Series 1 and 2

have been tabled in Parliament on 1 October 2013. I wish the reports will become the

basis to rectify all weaknesses in the effort to mitigate continuous abuse of power,

wastages and excessive spending as well as to enhance the integrity and accountability

for public money.

PREFACE

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

evaluate whether the activities of Federal Statutory Bodies have been managed

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

activities namely management of grants, procurement, construction, maintenance,

management of investment, management of assets and socio-economic enhancement

activities. This Report contains matters observed from the audit carried out on 4

projects/activities.

4. Generally, the weaknesses observed include works/supplies that did not adhere

to the specifications or inferior quality, unreasonable delays and wastages. These

weaknesses were caused by negligence in complying with Government regulations and

procedures; lack of meticulous planning on projects/activities and in determining the

scope and specifications of tenders; lack of close and effective monitoring on works of

contractors/consultants/suppliers; lack of expertise in the management of projects;

delays in decision making on procurement; agencies’ information system were

incomplete and not updated and low priority given to the outcome/impact on the

projects/activities.

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

of the equity structure owned by government are also being audited by the National

Audit Department. The audit was conducted to evaluate whether the management of

activities, corporate governance and financial management have been carried out

effectively, economically and in accordance with its objectives. Analyses were also

carried out on the financial performance of subsidiary companies. Matters observed on

the analysis of the financial performance for the financial years 2008 until 2012, on the

audit of the management of activities, corporate governance and financial management

for the 3 subsidiary companies were reported in this Report.

6. All matters to be reported have been brought to the attention of the respective

Chief Executive Officer of the Federal Statutory Bodies and subsidiary companies for

their verification. The feedback received was considered when finalising this Report. In

this Auditor General’s Report, a total of 29 recommendations were forwarded to the

respective Chief Executive Officer for corrective actions or monitoring to ensure the

same weaknesses will not recur. In the year 2013, the National Audit Department has

established the Auditor General’s Dashboard (AG’s Dashboard) to provide latest

feedback to the public and to promote transparency as well as to expedite in resolving

the issues at the agency. It displays the status on the issues reported in the Auditor

General’s Report to the public such as action taken, in progress and settled or

completed.

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7. I wish to record my thanks to all the officers in the Federal Statutory Bodies and

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

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

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

(TAN SRI DATO’ SETIA HAJI AMBRIN BIN BUANG)

Auditor General Malaysia

Putrajaya

1 October 2013

INTRODUCTION

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1. According to the Statutory Bodies (Accounts and Annual Reports) Act 1980, a

Statutory Body is an association which is incorporated in accordance with federal

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

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

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

under the Companies Act 1965.

2. A Federal Statutory Body is established to carry out Government policies

through the implementation of programmes and activities which have been determined

in a professional and effective manner. Every statutory body is subjected to their own

incorporation Act or subsidiary incorporation legislation which sets out the purpose and

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

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

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

administration and management of Federal Statutory Bodies. The Board of Directors

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

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

relevant expertise in the statutory body’s activities. The appointment and termination of

board members are under the jurisdiction of the Minister. Each federal statutory body is

placed under a Minister in charge as required by the incorporation legislation or by the

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

Statutory Body includes the power to borrow, lend, invest, set up a subsidiary company,

managing funds and trust accounts, and implementing programmes and activities

subject to its own legislation. A number of Federal Statutory Bodies are dependent on

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

their own funds.

3. In terms of financial management, the Federal Statutory Body may have its own

financial regulations, systems and procedures and its own accounting policies which is

in accordance with generally accepted accounting principles. All Federal Statutory

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

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

the Federal Statutory Bodies shall, within six months after the end of the financial year,

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

provides that the audit of the financial statements of the federal statutory body is

subjected to the Audit Act 1957. The Federal Statutory Body shall, in respect of each

financial year and within one month after the receipt of its audited financial statements

and the Auditor General’s Report, submit to the Minister together with a report of its

INTRODUCTION

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activities. The Minister shall as soon as possible upon receiving the audited financial

statements cause it to be tabled in Parliament.

4. As at the end of year 2012, a total of 127 Federal Statutory Bodies were

established to perform such functions as stated in its legislation.

SYNOPSIS

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PART I

- MANAGEMENT OF FEDERAL STATUTORY BODIES ACTIVITIES

INTRODUCTION

1. In addition to attestation audit, the National Audit Department is required under

Section 6 of the Audit Act 1957 to audit federal statutory bodies’ activities to ascertain that

they were implemented efficiently, effectively and prudently in line with prescribed objectives.

In the year 2012, a total of 4 activities were selected for audit and to be tabled in the third

Parliament session of 2013. The audit findings were discussed with the respective

management of the federal statutory bodies upon the completion of the audit. The Chief

Executive Officers of the federal statutory bodies and their respective Ministries were also

informed of the matters to be reported for their confirmations. The feedback from the federal

statutory bodies were incorporated in this Report.

2. UNIVERSITI MALAYSIA TERENGGANU

2.1 Management On The Procurement Of Research And Training Vessel RV

Discovery

a. Universiti Malaysia Terengganu (UMT), established under the Universities

And University Colleges Act 1971, is a Public Institution of Higher Education

which leads in the field of oceanography, marine science and aquaculture. On

26 July 2012, UMT was conferred the status of a Higher Institution Center Of

Excellence by the Ministry of Higher Education potentially in the field of

oceanography and marine science. In the year 2004, UMT had proposed for

the procurement of a research and training vessel for teaching, learning and

research and the Economic Planning Unit (EPU) of Prime Minister’s

Department had approved this procurement through the Ninth Malaysia Plan

(RMKe9) with a budget ceiling of RM12.5 million in 2008. The original

contract value for the procurement of this vessel was RM11.99 million.

However, this project includes 2 variation orders totalling RM2.40 million

which brings the total contract value to RM14.39 million. Among the

objectives of the procurement were to enhance the effectiveness of research

activities and post graduate studies; to ensure a high level of safety during the

learning and research activities on the vessel; and to expand the capabilities

and coverage of oceanography research to the entire exclusive economic

zone of South China Sea.

SYNOPSIS

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b. An Audit carried out between November 2012 to February 2013 found that

the management on the procurement of the training and research vessel RV

Discovery was unsatisfactory. The objectives of the research and training

vessel procurement were not achieved because the vessel has yet to be

utilised. Among the weaknesses were as follows:

i. The contractor did not submit application for the installation of

permanent ballast to the Marine Department; the approval on the

exemption of wind pressure scale to Beaufort Wind Force 6 has been

cancelled by Marine Department; the application for wind pressure

exemption which was supported by the Ship Classification Body was

amended by the contractor from Beaufort Wind Force scale 5 to 6;

passed the sea acceptance test although it did not comply with test

procedures and did not have the Statutory Certificate to sail.

ii. The first variation order which involved additional costs amounting to

RM1.27 million was implemented before approval.

iii. The brand and specifications of the vessel equipment did not comply

with the agreement and the detailed price listing of spare parts were not

submitted by the contractor.

iv. The vessel building quality did not comply with the standards and

regulations of the Marine Department.

v. Defects on the vessel and its equipment have yet to be rectified and the

defect liability period is due to expire.

vi. Research equipment worth RM1.12 million were not utilised. This

delayed the oceanography research activities which were planned and

also affected the student learning process.

vii. The appointment of the Ship Classification Body did not comply with the

terms of the agreement.

c. Audit recommended that UMT should take the following remedial actions:

i. UMT should obtain the approval for the installation of permanent ballast

on the RV Discovery from the Marine Department.

ii. UMT should ensure that the vessel’s operations comply with the

approval from the Marine Department i.e areas designated to Beaufort

Wind Force scale 5 only.

iii. UMT should obtain the Statutory Certificates before the RV Discovery

commences operation to ensure the safety of the crew and users.

iv. UMT should ensure that price adjustments are made for equipment

which did not meet the specifications and brand before finalising the

contract price.

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v. UMT should ensure all defects in the construction of RV Discovery are

rectified immediately by the contractor. A thorough check and

continuous monitoring should be carried out to ensure the quality of the

rectification works.

vi. UMT should take necessary actions against the contractor to recover all

losses if the Marine Department certified that the vessel cannot operate

for its intended purpose.

3. SOCIAL SECURITY ORGANISATION

3.1 Management Of Contributions Collection

a. Social Security Organisation (SOCSO) was established to provide social

security protection to all employees and their dependents through social

security schemes. SOCSO manages 2 types of contribution schemes which

are the Invalidity Pension Scheme (Type 1) and the Employment Injury

Insurance Scheme (Type 2). The Invalidity Pension Scheme is for employees

who are below 55 years old while the Employment Injury Insurance Scheme

is for employees above the age of 55 or over the age of 50 when they register

and make contributions to SOCSO for the first time. Employers with at least

one or more employees who is/are a Malaysian citizen and earning less than

RM3,000 a month is/are compelled to register and contribute to SOCSO on a

monthly basis. As at the end of 2012, there are 381,291 employers and 5.86

million employees who are actively contributing to the scheme.

b. An Audit carried out between September to December 2012 found several

weaknesses in the management of contributions. Among the weaknesses

identified were as follows:

i. Employer contributions amounting to RM1.30 million and employees

contributions totalling RM2.63 million contain errors since 1991 and

have not been recorded into the Q-Term system.

ii. At the end of 2012, the difference between employer and employee’s

contributions in the Q-Term system amounted to RM56.57 million.

Whereas the difference between records in Q-Term system and the

Cash Book for employer contributions amounted to RM0.40 million. The

differences found in both records and also in the system have occurred

since 2002.

iii. Delays in receiving contribution documents ranged from 5 to 38 days as

the recording of employees documents was centralised in headquarters.

iv. The management of uncleared cheques was unsatisfactory as

uncleared cheques totalled RM3.38 million from 2000 to 2012 had not

been replaced.

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

i. SOCSO has developed a new system called PINTAR to address the

differences in records between employer and employee. Hence,

SOCSO should ensure data integrity by reconciling the existing

differences in the records before proceeding with the data migration.

ii. SOCSO should introduce an online updating system for employer and

employee contributions records at State/Office level to reduce workload

at headquarters and to overcome the differences between employer and

employee contributions records.

iii. SOCSO should set a time norm for work processes on contribution

activities such as receiving employee contribution records from

State/Office level to the headquarters, updating each employer and

employee contribution records, replacing uncleared cheque and

payment of contribution arrears with interests after court settlement.

iv. SOCSO should monitor more effectively employers who had not

replaced uncleared cheques and take the necessary actions.

4. PILGRIMS FUND BOARD

4.1 Management Of Hajj’s Operating Activities

a. Pilgrims Fund Board (also known as Tabung Haji) was established under the

Hajj Pilgrim’s Fund Act 1995 (Act 535) on 1 June 1995. The main objective

of Tabung Haji is to enable the Muslims to perform hajj and to provide

services and facilities to them during their pilgrimage. As at December 2012,

1,054,563 depositors have registered with Tabung Haji and 29,314 have

been selected to perform hajj in 1433H/2012M season. The selected pilgrims

have been given the option to perform the hajj via Muassasah with Tabung

Haji or join the private pilgrimage package managed by the private

companies licensed by Tabung Haji.

b. An Audit carried out between September to December 2012 found that

overall performance of operational management for the hajj pilgrimage at

1433H/2012M was good. Thorough planning and collaboration with all

stakeholders including government agencies have facilitated the

management of pilgrims to perform the hajj. Tabung Haji has improved their

services to enhance the efficiency and effectiveness of the Hajj’s operation.

However, Tabung Haji should consider the following:

i. Improvement of the internal control in Hajj System, especially on the

appeal module and should ensure that the supplier does not have

access to generate reports in the system.

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ii. System Maintenance Agreement not renewed to protect Tabung Haji’s

interests.

c. Audit recommended that Tabung Haji to take the following actions:

i. Tabung Haji should enhance the internal control system to ensure the

integrity of Hajj data.

ii. Tabung Haji should finalise the System Maintenance Agreement to

protect their interests in the event of any breach of conditions in the

contract.

5. COUNCIL OF TRUST FOR THE PEOPLE

5.1 Management Of Skill And Technical Equipment

a. Among the objectives of the Council Of Trust For The People (MARA) are to

produce a globalised human capital with integrity as well as to develop

successful and innovative entrepreneurs. In line with these objectives, Skill

And Technical Division (BKT) is responsible for handling technical and

vocational education programmes in 10 MARA Higher Skill Colleges (KKTM)

and 13 MARA Skill Development Institutes (IKM) in Malaysia. MARA is

responsible to produce skillful indigenous youths in various technical fields

and also prospective entrepreneurs. BKT offers 81 programmes including 34

skill programmes in IKM, 47 diploma programmes in IKM and KKTM. The

total budgeted ceiling for development expenditure in the Ninth Malaysia Plan

(RMKe-9), Tenth Malaysia Plan (RMKe-10) and Second Economic Stimulus

Package (PRE2) for the procurement of equipment is RM807.67 million.

MARA has allocated RM442.36 million for the procurement of equipment in 2

IKM and 4 KKTM of which RM145.62 million was spent from 2010 to 2012.

b. An Audit carried out between September and December 2012 revealed

several weaknesses in the management of skill and technical equipment by

MARA. Among the weaknesses were as follows:

i. Jalinan Rakyat Sdn. Berhad has failed to supply equipment to KKTM

Beranang worth RM18.96 million in accordance with the contract with an

extension of time in January 2012 as the company’s bank facilities were

frozen. The delivery was only completed in October 2012.

ii. The direct negotiation process for 3 suppliers of equipment worth

RM98.91 million took between 3 to 4 years from the date of approval by

the Ministry of Finance until the contract is finalised.

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iii. Technology providers who were appointed failed to perform their

responsibilities and this had affected the supply of equipment and

learning schedule.

iv. A total of 6 types of equipment valued at RM2.51 million have not been

received in 3 IKM and KKTM. Besides that, 8 types of equipment worth

RM2.79 milion have not been used between 1 to 18 months since they

were delivered. This was due to assets purchased earlier while the

mechanical and electrical (M & E) as well as civil and structural (C & S)

works have not been completed. Among the unused equipment is the

Universal Testing Machine (UTM) costing RM870,129 as the suitable

platform was not provided. A total of 59 types of equipment worth

RM2.36 million were supplied but were not placed at the specified

locations.

v. MARA incurred additional expenses of RM1.38 million in rental

equipment and transportation for a period of 3 years due to delay in

supply of equipment.

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

i. MARA should be more efficient in managing procurement through direct

negotiation and monitor the performance of suppliers. In addition, the

Ministry of Finance should ensure the capability of suppliers before

awarding the contract.

ii. MARA and the appointed technology providers should review the

requirements of the teaching and learning equipment especially those

involving C&S and M&E works in the building. MARA should consider

coordinating and engaging with all technology providers so that work

can be implemented effectively.

iii. MARA should ensure that the committees involved with the

management of equipment performed their responsibilities efficiently

and effectively.

PART II

- MANAGEMENT OF FEDERAL STATUTORY BODIES SUBSIDIARY COMPANIES

INTRODUCTION

6. Currently, 204 subsidiary companies and sub-subsidiary companies of Federal

Statutory Bodies were gazetted to be audited by the National Audit Department. The

objectives of establishing these subsidiary companies are for implementing various activities

such as business, investment and socio economic. The purpose of undertaking these

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activities is to generate profits and reasonable returns and to provide efficient and effective

services to the public.

7. THE FINANCIAL PERFORMANCE OF SUBSIDIARY COMPANIES

a. An Audit analysis was conducted on 62 financial statements of subsidiary

companies and 36 sub-subsidiary companies of Federal Statutory Bodies received as

at August 2013 for the years of 2008 to 2012. The subsidiary companies were

analysed in respect of their financial performance, dividend payment, bonus, tax and

zakat and companies’ status. In general, it was revealed that profit before tax for 62

subsidiary companies in the year 2012 increased amounting to RM184.48 million

compared to the year 2011 which amounted to RM177.09 million. Audit analysis also

revealed that 24 subsidiary companies recorded a pre-tax profit of RM598.75 million

for 5 consecutive years whereas 5 others suffered losses totaling RM15.69 million for

the same period.

b. Based on the 2012 financial position, it was revealed that 14 subsidiary

companies have recorded profits and have paid dividends amounting to RM131.98

million to their respective parent companies. Besides that, 6 subsidiary companies

paid dividends for 5 consecutive years. Subsidiary companies from the other sectors

paid the highest tax and zakat for year 2012. There are 17 subsidiary companies and

sub-subsidiary companies which are inactive, 9 companies winding up and one

company has been sold.

c. Audit on the management of companies was conducted on 15 subsidiary

companies in year 2012, whereby 8 of them were reported in detail and 7 others

were reported in summary form. Audit findings, in general, revealed that the

management of subsidiary companies and sub-subsidiary companies of Federal

Statutory Bodies were well managed. However, there were weaknesses on the

implementation that should be addressed to ensure activities were implemented

effectively and properly to achieve their desired objectives.

8. A SUBSIDIARY OF TERENGGANU TENGAH DEVELOPMENT AUTHORITY

8.1 Management Of Kolej KETENGAH Sdn. Berhad

a. Kolej KETENGAH (KKSB) was established on 11 July 1981 and is a wholly-

owned subsidiary of KETENGAH Holding Sdn. Berhad, a subsidiary of

Terengganu Tengah Development Authority (KETENGAH). KKSB has an

authorised capital of RM5 million and a paid up capital of RM500,000. KKSB

began operations in 2002 and is registered under National Private Institutions

of Higher Education with the approval of the Ministry of Education on 20

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November 2003. The company's vision is to establish a knowledge society

and information technology to bridge the gap of urban and rural residents.

b. An Audit carried out in September 2012 revealed that the financial

management and corporate governance of KKSB were good. However, the

financial performance and management of activities were unsatisfactory. The

accumulated losses of RM380,118 in 2012 was due to losses for the years

2008 until 2011. Among the weaknesses were as follows:

i. The student intake did not achieve the target with only 174 students or

13.5% compared to the target of 1,287 students for the courses offered.

ii. The marketing activities were ineffective although as at April 2013 KKSB

has implemented 43 programmes and also a marketing plan to attract

students pursuing studies in KKSB.

iii. A new building was not utilised due to the low student enrollment and no

review has been carried out by KKSB and KETENGAH on the number

of student enrollment and courses offered.

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

i. KKSB should review the marketability of the course offered and also to

consider collaboration with other agencies to attract more students and

sponsors.

ii. KKSB should intensify on its promotional activities and on the courses

offered more effectively to attract more students.

iii. KKSB should optimize the usage of the existing and the new college

building to avoid wastage.

iv. KKSB should consider extending students intake to other states to solve

the problem of student enrollment.

9. A SUBSIDIARY OF PUTRAJAYA CORPORATION

9.1 Management Of Pengangkutan Awam Putrajaya Sdn. Berhad

a. Pengangkutan Awam Putrajaya Sdn. Berhad (PAPSB) established on 20 May

1999, is a wholly owned subsidiary of Perbadanan Putrajaya (PPj) with an

authorised and paid up capital of RM100,000. PAPSB was established to

manage the public bus service in the Putrajaya or also known as Nadi Putra.

b. An Audit carried out in December 2012 found that financial management and

corporate governance were good while financial performance and

management activities of PAPSB were unsatisfactory. PAPSB has recorded a

profit after tax of RM23,550 in 2010 while recorded losses after tax for the

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years 2008, 2009, 2011 and 2012 which contributed to the negative Net Profit

Margin and Return on Equity. Among the weaknesses were as follows:

i. The bus service has suffered continuous operating losses from

RM5.82 million in 2008 to RM17.49 million in 2012.

ii. PPj and PAPSB did not establish any achievement target for passenger

and fare collection.

iii. A total of 12 fixed routes did not reach the target due to the lack of bus

drivers.

iv. A total of 8 fixed routes and 5 direct routes had an average of less than

10 passengers per trip.

v. Route Maps were insufficient as only 100 out of 302 bus stops were

provided with Route Maps.

vi. Number of monthly passes declined by 50.2% from 0.81 million in 2010

to 0.40 million in 2012.

vii. PAPSB did not claim the fixed rate payment in accordance with the

Operating Agreement resulting in a decrease in revenue of RM2.59

million.

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

i. PPj and PAPSB should review the bus fare which has not been

increased since it commences its operation.

ii. PAPSB should set yearly target for passengers and fare as well as

review the bus routes which are more economical and effective to

operate.

iii. PPj and PAPSB should intensify promotional activities to residents in

Putrajaya so as to increase the number of passengers.

iv. PAPSB should improve its information system by providing Route Map

for every bus stop and bus to facilitate passengers.

v. PPj and PAPSB should provide supplementary agreement for any

changes regarding operating claims.

10. A SUBSIDIARY OF RUBBER INDUSTRY SMALLHOLDERS DEVELOPMENT

AUTHORITY

10.1 Management Of RISDA Semaian Dan Landskap Sdn. Berhad

a. RISDA Semaian Dan Landskap Sdn. Berhad (RISDA Semaian) is a fully-

owned subsidiary of RISDA registered under the Companies Act 1965 on 31

July 1979. RISDA Semaian has an authorised capital of RM6 million and a

paid-up capital of RM4 million. Its main business is to produce high quality oil

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palm and rubber seedlings to smallholders participating in the RISDA

Replanting Plan.

b. An Audit conducted between November to December 2012 revealed that the

financial performance and corporate governance of RISDA Semaian were

good. RISDA Semaian recorded a consecutive net profit for the periods of

2008 to 2012 and an increase in retained earnings while the financial

performance and management of activities of RISDA Semaian were

satisfactory. Among the weaknesses were as follows:

i. According to the Rubber Seedling Supply Agreement signed on January

2012, RISDA is required to supply 24 million rubber seedlings to RISDA.

However, RISDA Semaian only set its target of 16.80 million and has

only achieved 12.31 million or 73.3% in 2012.

ii. RISDA Semaian was unable to produce the targetted amount of rubber

seeds as the seed garden contributed only 28% of the total supply of

rubber seeds. RISDA’s dependence on the rubber seeds from external

sources has indirectly affected the production of quality rubber

seedlings.

iii. RISDA Semaian Sabah through Usaha Ladang RSSB only produces

1.10 million rubber seedlings or 21% from the set target. This is

because the company did not have any land to develop its own

nurseries and the appointed contractors have no or little experience on

nursery. Hence, RISDA Semaian has to rely on the supply of rubber

seedlings from contractors.

iv. RISDA Semaian receivables amounted to RM3.41 million as at 31

December 2012 and a total of RM1.55 million or 45.5% were more than

90 days.

v. The asset management was unsatisfactory. Asset records were

incomplete and not updated. Details of the assets, such as location,

identification tag and the cost were not recorded.

c. Audit recommended that RISDA Semaian should take the following actions:

i. RISDA Semaian should review the demands of rubber seedlings so that

production targets can be made according to the agreement and in

accordance with the RISDA Replanting Plan.

ii. RISDA Semaian should develop more lands to be used as seed garden

to reduce dependence on outside suppliers of rubber seeds. This is to

ensure the quality of these seedlings can be adequately controlled.

iii. RISDA Semaian should have their own land as nursery to reduce the

dependence from outside suppliers of rubber seedlings. RISDA

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Semaian should also monitor the appointed contractors to ensure the

management and maintenance of the nursery are in line with the

agreement.

iv. RISDA Semaian shall review, update and improve the credit control

policy and asset management to strengthen the internal control and

good governance.

POSTSCRIPT

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1. Overall, the performance audit on 4 projects and activities showed that the

planning of the projects and activities by the Federal Statutory Bodies were good.

However, in terms of their implementation, there were several weaknesses that need to

be immediately addressed to ensure the implementation of each project or activity is

carried out in an efficient, economical and effective manner so as to achieve the stated

objectives. Some agencies have taken corrective actions after being highlighted by the

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

performed based on sampling and on limited scope, a check and balance system

should be established by the Chief Executive Officer to ensure a thorough examination

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

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

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

money.

2. The Chief Executive Officers of the Federal Statutory Bodies should monitor the

financial performance and management of activities of the subsidiaries to warrant good

corporate governance and ensure global competitiveness.

3. In addition to complying legal requirements, I hope this Report will provide lessons

learnt to prevent recurrence of the weaknesses, strengthening improvement efforts and

enhancing accountability and integrity. Eventually, it will contribute towards the

achievement of the National Transformation Programme to fulfill the slogan of

“People First, Performance Now” and conform to the needs, interests and aspirations

of all Malaysians.

NATIONAL AUDIT DEPARTMENT

Putrajaya

1 October 2013

POSTSCRIPT

NATIONAL AUDIT DEPARTMENT MALAYSIANo. 15, Level 1-5, Persiaran Perdana, Precint 2

Federal Government Administrative Centre62518 Putrajaya

www.audit.gov.my