SYNOPSIS

AUDITOR GENERAL REPORT FOR THE YEAR 2013

ON ACTIVITIES OF THE FEDERAL

MINISTRIES/DEPARTMENTS AND MANAGEMENT OF THE

GOVERNMENT COMPANIES

NATIONAL AUDIT DEPARTMENT MALAYSIA

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CONTENTS

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CONTENTS

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PREFACE xi SYNOPSIS 3 PART I IMPLEMENTATION OF ACTIVITIES BY THE FEDERAL MINISTRIES/DEPARTMENTS PRIME MINISTER’S DEPARTMENT Division Of Legal Affairs 1. Construction Of Kuantan New Court Complex, Pahang 3

MINISTRY OF FINANCE Inland Revenue Board Malaysia 2. Management Of Petroleum Tax 6 Royal Customs Department Malaysia 3. Managing Customs Marine Base 9

MINISTRY OF AGRICULTURE AND AGRO-BASED INDUSTRY 4. Paya Peda Dam Development Project, Besut,

Terengganu 13

MINISTRY OF DOMESTIC TRADE, CO-OPERATIVES AND CONSUMERISM 5. Transformation Programme Of Retail Stores 16

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MINISTRY OF WORKS 6. Restoration And Upgrading Of Alor-Setar-Kuala

Nerang-Durian Burung Road Project, Kedah 18 Public Works Department 7. Construction Of Banting Polytechnic, Selangor 20

MINISTRY OF ENERGY, GREEN TECHNOLOGY AND WATER 8. Management Of Green Technology Financing Scheme 22

MINISTRY OF EDUCATION 9. Management Of Fundamental Research Grant

Financing Scheme For Public Higher Education Institutions 25

MINISTRY OF HEALTH 10. Management Of Rehabilitation Programme For

Malnourished Children 28 11. Management Of Biomedical Engineering Maintenance

Services 31 12. Management Of Inhouse Meals In Hospital 34 13. Management Of 1Malaysia Clinic 37

MINISTRY OF HUMAN RESOURCES Manpower Department 14. Procurement Of Learning Equipment For Advanced

Technology Training Centre And Industrial Training Institute 39

MINISTRY OF DEFENCE Malaysia Armed Forced 15. Management Of Malaysian Armed Forces Medical

Equipment Procurement 42

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MINISTRY OF HOME AFFAIRS People’s Volunteer Department Of Malaysia 16. Management Of The People’s Volunteer Corps 45 Prison Department Of Malaysia 17. Management On Procurement Of Bread Equipment

And Machine 47

PART II MANAGEMENT OF GOVERNMENT COMPANIES 18. Cradle Fund Sdn. Bhd. 50 19. Malaysia Technology Development Corporation

Sdn. Bhd. 54 POSTSCRIPT 59

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PREFACE

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PREFACE

1. Articles 106 and 107 of the Federal Constitution and the Audit Act 1957 require the Auditor General to audit the Federal Government‟s Financial Statement, financial

management, activities as well as management of Federal Government Companies and submit his reports to His Majesty, Seri Paduka Baginda Yang di-Pertuan Agong and obtain his assent before tabling them in Parliament. To fulfil its 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 Government‟s 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/ Departments is in accordance with relevant financial laws and regulations.

1.3. Performance Audit – to evaluate whether the Federal Government activities have been carried out efficiently and economically to achieve its desired objectives/goals.

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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 1st Series year 2013 consists of 2 parts as follows:

Part I : Implementation Of Activities Of The Federal Ministries/Departments

Part II : Management Of Federal Government

Companies

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 procurement, contract administration, asset management, construction, infrastructure, maintenance, education, health, human capital, revenue management, socio-economic upgrading programmes and environment. This report contains observations from the audit of 17 programmes/activities/projects of 14 Federal Ministries/ Departments, management of 2 Government Companies. Generally, weaknesses observed are such as improper payment; work/procurement did not follow specifications/low quality/was unsuitable; unreasonable delays; unreasonable price; management of procurement/

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contract/project/aids; wastage; weaknesses in revenue management; weaknesses in management of the Government‟s assets; failure to comply with environmental laws and weaknesses in management of government‟s

companies. The said weaknesses were due to negligence when complying with the Government‟s 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; information systems of the Ministries/Departments/ Government Companies were incomplete and not updated; outcome/impact of programmes/activities/projects was not given due attention and insufficient funds for asset maintenance.

4. Just as the previous year, relevant Heads of Departments were informed beforehand on issues highlighted in this report for verification purposes. Beginning this year, the relevant Ministers were also informed regarding the report on the Ministries concerned to ensure that the Minister concerned is aware of the issues reported and takes immediate actions. In order for corrective actions to be taken and improvements to be made by the relevant Chief Secretaries of the Ministries/ Heads of Departments/Chief Executive Officers of Government Companies, a total of 109 recommendations were made by the National Audit Department.

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5. The Auditor General‟s Dashboard was launched on 30 May 2013 and displayed on the website of the National Audit Department on 31 May 2013. It serves as a dissemination channel to the public on the latest status of actions taken on issues raised in the Auditor General‟s

Report beginning 2012. It is also used to monitor actions taken by the Ministries/Departments/Government Companies. Besides that, it also serves to show the Government‟s commitment in tackling leakages in its

financial management.

6. 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 18 February 2014

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SYNOPSIS

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SYNOPSIS

PART I - IMPLEMENTATION OF ACTIVITIES BY

THE FEDERAL MINISTRIES/DEPARTMENTS PRIME MINISTER’S DEPARTMENT Division Of Legal Affairs 1. Construction Of Kuantan New Court Complex,

Pahang

a. The Kuantan New Court Complex (Complex) in Bandar Indera Mahkota, Kuantan, Pahang was built to replace the existing Courthouse in Jalan Masjid, Kuantan, Pahang as the existing Courthouse could not accommodate the expansion in the judiciary activities. Furthermore, the Complex could provide a more comfortable physical space for the judicial activities and to ensure smooth running of the administrative court in Kuantan. The Complex construction project which covered 11.01 acres was implemented under the Second Economic Stimulus Package with a contract cost worth RM157.34 million. The project started on 8 July 2009 with a contract period of 78 weeks. However, the project was only completed on 17 July 2012 (158 weeks) and handed over by the Public Works Department (PWD) on 20 July 2012 to the Office of the Chief Registrar of the Federal Court. Audit findings revealed that the objective of the Complex construction in providing a more comfortable physical space for the

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judicial activities in Kuantan, Pahang had been achieved. The construction of the court complex was satisfactory. However, from samples of work and equipment checked there were several weaknesses as follows:

i. the construction of the Complex was delayed for 560 days and the cost has increased by RM19.56 million due to poor planning in design and scope of works;

ii. defects found during the Defect Liability Period (DLP) were not rectified yet;

iii. maintenance works during DLP were not carried out;

iv. construction design was not suitable/practical; v. construction works did not comply with contract

specifications/drawings; vi. construction works were not satisfactory; vii. there were differences between the As-Built

Drawings and the actual construction; and viii. furniture/equipment were not placed in the proper

location.

b. It is recommended that the relevant parties consider the following actions:

i. PWD should ensure that construction projects are carefully planned to ensure the smooth running of the project;

ii. PWD should inspect and ensure that the contractor repairs damages/defects within a reasonable period prior to issuing the Certificates Of Making Good Defects;

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iii. PWD should examine the real causes of mouldy and sagging ceiling and take appropriate action to ensure safety and health of customers;

iv. PWD and consultants should closely monitor and supervise the work progress of the contractor and ensure that works done by the contractor are in accordance with specifications, suitability/practicality and quality/durability/satisfactory. Action should be taken to rectify works that did not comply with specifications, unsuitable/impractical and quality/ durable/satisfactory;

v. PWD and consultants should monitor the maintenance works during the defects liability period to make sure that work is done according to schedule;

vi. The Court and PWD should ensure that the maintenance contractor appointed carries out the maintenance work as scheduled so that equipment/ components built are functioning effectively and consistently;

vii. The consultants should conduct a comprehensive review before the complete As-Built Drawings is finalised;

viii. The Court should urgently conduct a physical inspection of all furniture/equipment procured and ensure that it is in accordance with the Treasury Instructions. Initial Reports should be made immediately in all cases of loss of equipment; and

ix. The Court should take immediate action to ensure that all assets are properly registered and updated in accordance with Treasury Circular No. 5 Year 2007.

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MINISTRY OF FINANCE Inland Revenue Board Malaysia 2. Management Of Petroleum Tax

a. The Petroleum Division, Inland Revenue Board of Malaysia (IRBM) manages the petroleum tax consisting of 2 sectors, namely upstream and downstream sector. Upstream sector refers to petroleum operations carried out by upstream petroleum companies which involve exploration, development, production and sale of petroleum. While the downstream sector relates to downstream petroleum companies conducting processing activities which includes refining, development and marketing of petroleum-based products as well as petrochemical industry. Upstream petroleum company income tax is imposed under the Petroleum (Income Tax) Act 1967 that is for companies which is subject to Petroleum Income Tax Act (PITA case). The taxable parties are Petroleum Nasional Berhad (PETRONAS), the Malaysia-Thailand Joint Authority (MTJA) and any person who entered into a petroleum agreement with PETRONAS or MTJA. Downstream petroleum company taxable income comes under the Income Tax Act 1967 that is for companies which is subject to Corporate Income Tax Act (CITA case). IRBM implements Self-Assessment System for upstream petroleum company with effect from the year of assessment 2010, while the Self-Assessment System for downstream petroleum company has started earlier which is from the year of assessment 2001. Petroleum Division, IRBM carries out 2 types of audit, namely field audit and desk audit.

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A field audit is one that takes place at a taxpayer‟s

premise. It involves the examination of the tax payer‟s

business records. A taxpayer will be given notice prior to a field audit. A desk audit is held at the IRBM‟s office.

Desk audits are normally concerned with straightforward issues or tax adjustments which are easily dealt with via correspondence. Generally, a desk audit involves checking all information on income and expenses as well as various types of claims made by a taxpayer in his income tax return. Overall, Audit findings on the tax assessment activities in terms of field/desk audit and tax collection activities from petroleum companies revealed the following:

i. a total of 31 field audits on CITA cases were not completed in time between a period of a month to 3 years 5 months which involved additional taxes and penalties amounting to RM8.83 million;

ii. non-compliance of work procedures during the field Audit of 8 CITA‟s companies resulted in incomplete

Audit Checklist, where additional taxes and penalties levied amounted to RM2.57 million, notices of estimated assessment and penalty amounting to RM1.94 million were not issued to 3 CITA cases as well as assessment for the income tax return forms (3 cases of Petroleum Income Tax Return Form (CPP) and 2 cases of Form C) which were already received but were not taken into account during preparation of ledger;

iii. actions were not taken to enforce tax collection resulting in under collection of tax revenue amounting to RM3.34 million, which consist of:

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tax arrears for 17 companies (CITA cases) amounting to RM2.94 million; and

increase in tax amounting to RM404,656 was not imposed on tax arrears for CITA cases.

iv. civil suits and property caveats were yet to be taken against petroleum company (CITA case) which did not settle tax arrears.

b. It is recommended that IRBM considers the following:

i. strict enforcement on the collection of tax arrears to avoid loss of revenue to the Government;

ii. increase the number of companies to be audited either field audit or desk audit relating to PITA and CITA cases;

iii. the timeframe for desk audit on PITA case must be specifically mentioned in the Petroleum Tax Audit Framework;

iv. study on ways to improve the Self-Assessment System in order to enhance the effectiveness of the notice issuance for estimated assessment and penalty imposition on CITA cases which do not submit Form C;

v. conduct review on the capacity of automation system such as the Self-Assessment System and the Revenue Management System (ReMS) to further enhance the effectiveness of income tax collection; and

vi. enhance periodic internal inspections and monitoring of the tax assessment and tax collection activities. IRBM also needs to ensure that immediate actions are taken against non-compliance issues to prevent them from recurring.

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Royal Customs Department Malaysia 3. Managing Customs Marine Base a. The Royal Malaysian Customs Department (RMCD) is

responsible for ensuring that no revenue leakage occurs as a result of smuggling. As such, the RMCD has taken the initiative to undertake the construction of Customs Marine Base (CMB) as a basic necessity in the planning and controlling of sea and river smuggling activities. The CMB could also provide logistical facilities for the efficient operation of Customs boats. With the setting up of CMB, the quality in managing Customs boats could be improved and marine enforcement activities intensified. Besides that, anti-smuggling monitoring through sea and river patrols at entry and exit points could be carried out effectively. The RMCD has 20 CMB situated in all states as well as the Federal Territory of Labuan. Under the Ninth Malaysia Plan, the Ministry of Finance has approved the construction of 6 new CMB with the project ceiling cost of RM112.31 million and 6 contracts worth RM94.92 million were duly signed. The construction of all CMB was implemented by the respective State Public Works Department (PWD) except for the CMB at Tanjung Gemok, Pahang which was carried out by RMCD. Audit findings revealed that generally, all CMB were managed satisfactorily. Intended number of marine patrols for a period of 3 years was achieved by 3 CMB. Tanjung Gemok CMB could not achieve the targeted number of marine patrol as there were no marine officers or customs boats being stationed there. Besides that, the registration and storage of seized smuggled goods in the Enforcement Stores were

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carried out properly. However, there were some weaknesses that should be addressed as follows:

i. Lumut CMB and Kuala Perlis CMB did not achieve the targeted number of marine patrols due to the involvement of the respective Marine Units in carrying out land patrols and Indonesia-Malaysia Joint Customs Patrols, climatic factors that inhibit marine patrols, shortage of customs boats (either handed over to Malaysia Marine Enforcement Agency or due to breakdowns), as well as the disproportionate number of marine officers as compared to the number of Customs boats available;

ii. the marine jetty worth RM438,135 at Tanjung Gemok, Pahang CMB was not utilised as no Customs boats nor Marine Unit were stationed there;

iii. there were also facilities in CMB that were not utilised. For example, fuel storage tanks with a capacity of 20,000 litres were not used as these tanks were too big compared to the average usage of fuels by Lumut CMB and Pengkalan Kubor CMB. However, the construction projects of CMB which included fuel storage tanks were implemented before the Government‟s decision of handing over Customs vessels and boats to the Malaysia Marine Enforcement Agency;

iv. poor planning in the construction of CMB by PWD resulted in deficient components such as the boat ramp at Pengkalan Kubor CMB which was unusable as it did not continue well below the water level. As

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for the Sungai Pulai CMB, there was no barrier at the location of the jetty where a proposed additional pontoon was not built; and

v. the maintenance of CMB was confined to cleaning the offices and security controls. Financial budgets did not take into account preventive maintenance. Although CMB had only been operational for a period of 2 to 4 years, there were instances of poor maintenance as follows:

Sungai Pulai CMB: although the Defect Liability Period had expired in April 2013, maintenance and repairs should be under the responsibility of the contractor under the supervision of PWD until December 2013. However, during the Audit visit in October 2013, the contractor did not make good on a number of defects reported. Amongst the serious defects were damaged piers and fuel pumps, a non-functional crane, abandoned installation works of aluminium strips on the ceiling of the workshop, as well as cracks and broken tiles on office floors.

Kuala Perlis CMB: regular maintenance of the jetty such as removing of barnacles was not carried out and the electric cable installed under the building had fallen down due to rusty clips. This situation was dangerous as the electric cable was submerged during high tide.

Pengkalan Kubor CMB: the left pontoon leaked even after being repaired and was fully submerged in September 2012. Even though the pontoon started leaking in January 2012 (and in

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August 2012) and the Defect Liability Period expired in March 2013, no repairs were carried out by the contractor or the supplier of the pontoon. As such, RMCD had to incur an additional cost of RM12,300 to repair the pontoon in June 2013.

Weld Quay CMB: the pontoon finger had broken off and the office ceiling was damaged a couple of times due to roof leaks.

b. It is recommended that the RMCD and PWD consider the following:

i. RMCD should fill all vacancies of marine officers based on the approved warrant (and to redeploy officers if necessary) so that targeted number of marine patrols could be achieved by all CMB;

ii. RMCD should take immediate action to place suitable Customs boats and Marine officers at Tanjung Gemok, Pahang CMB so that the objective of building this CMB is achieved;

iii. RMCD should immediately review the usage of fuel storage tanks at Lumut CMB and Pengkalan Kubor CMB to ensure that such assets are fully utilised (for example, by sharing the usage of the fuel storage tanks with other enforcement agencies);

iv. PWD should carefully plan the construction of any future CMB projects and monitor the performance of contractors. Accordingly, unusable components such as the boat ramp at Pengkalan Kubor CMB should be rectified immediately; and

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v. RMCD should plan and implement preventive maintenance for all CMB by applying enough allocations from the Federal Treasury and ensuring repairs are carried out on broken down boats as reported by the Marine Units.

MINISTRY OF AGRICULTURE AND AGRO-BASED INDUSTRY 4. Paya Peda Dam Development Project, Besut,

Terengganu

a. The Paya Peda Dam Development Project was initiated in 1995 under the Seventh Malaysia Plan (RMKe-7). An allocation of RM4.50 million was approved for consultation services to detail out the design of the dam. Later, an allocation of RM150 million was approved in the Ninth Malaysia Plan (RMKe-9) for related works such as geotechnical, survey, topography and design which were initiated in 2007 and carried out by the appointed companies of the Ministry Of Agriculture And Agro-Based Industry (MOA). The Ministry of Finance (MOF) appointed joint-venture companies comprising of Syarikat JAKS Resources Bhd. and Pembinaan Sujaman Sdn. Bhd. through direct negotiation. An initial contract price worth of RM333.10 million was granted and later increased to RM343.55 million. The project period was from 1 June 2010 until 30 November 2013. Audit carried out on this project revealed that the development of the Paya Peda Dam as of July 2013 was unsatisfactory as the progress was 18.49% behind schedule (work progress status was 65.12% compared to contract schedule 83.61%).

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The delay was mainly due to contractor‟s failure to comply with the terms of contract. In addition to this, several weaknesses were identified as follows:

i. failure to adhere to contract clauses such as number of equipment used was less than the required number and appointment of subcontractor without the ministry‟s approval;

ii. an amount of RM0.53 million was identified as improper payment for earth works. However, MOA had taken steps to recover the said amount. The company had refunded RM150,000 and the balance would be paid on an instalment basis;

iii. selection of contractors who were not qualified/ experienced which partly contributed to the problems in project management, delays in project completion and high number of Non-Compliance Reports;

iv. recommendations in the EIA report were not fully complied with such as arsenic minerals test was not conducted, unsatisfactory waste management on used oil and the Emergency Response Team was not formed at the beginning of the project; and

v. lack of engagement with local residents in flood hazard mitigation.

b. It is recommended that the Ministry/Department/Agency and contractors/consultants involved take remedial actions as follows:

i. MOF and MOA should ensure that a comprehensive selection of contractors is made based on competence, qualifications, ability and experience;

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ii. MOA should ensure that the contract is signed at the beginning of the project. Besides that, the whole process of price negotiations should be completed within 2 weeks and should be finalised within 6 months for construction projects exceeding RM10 million;

iii. Contractor should obtain prior approval from the Superintending Officer in the appointment of sub-contractors;

iv. MOA should ensure that Jurukur Jitu Runding settles the remaining balance of the overpaid amount within the agreed period. In addition, the MOA should ensure that such overpayment does not recur in other projects;

v. MOA and the consultant should monitor the number of equipment at the construction site to avoid further delays in the construction progress;

vi. MOA and the consultant should constantly supervise to ensure smooth and effective implementation, stock materials are in good condition and comply with the EIA report as well as other research reports;

vii. MOA, consultant and contractors should immediately establish an information centre to enhance engagement and provide a comprehensive Emergency Response Plan (ERP). ERP should be tested from time to time to ensure its effectiveness; and

viii. MOA should review its method of compensation payment by insurance company and other terms of the contract.

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MINISTRY OF DOMESTIC TRADE, CO-OPERATIVES AND CONSUMERISM 5. Transformation Programme Of Retail Stores

a. The Retail Stores Transformation Programme (TUKAR) is one of the Entry Point Projects (EPPs) under the National Key Economic Areas (NKEA) for Wholesaling and Retailing which is supervised by the Ministry of Domestic Trade, Co-operatives and Consumerism (KPDNKK). The programme was launched on 19 February 2011. Its aim is to modernise the traditional and existing retail stores and to enhance its competitiveness in the retail store sector. The programme was conducted through Bank Rakyat and 5 special cooperatives approved by the Performance Management And Implementation Unit (PEMANDU) and under the supervision of the Cooperative Commission of Malaysia (SKM). The participants of this programme were given loans as their source of funds. For the period of 2011 to 31 December 2013, the Finance Ministry had approved an allocation fund of RM149 million to implement the TUKAR programme. The implementation of this project was expected to contribute RM5.56 billion to the Gross National Income (GNI). However, Audit findings revealed several weaknesses that should be given due attention by KPDNKK as follows:

i. a total of 18 (26%) out of 70 stores showed no change and also a decline in sales which was partly due to the competition from supermarkets nearby;

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ii. ten stores (14%) had closed down their business which was partly due to capital shortage. Besides that, the participants had difficulties in getting their supply because they did not maximise the returns on stock sales as a working capital for the next stock purchase. In addition, the participants also experienced difficulty in returning expired items due to absence of agreement between the participants and suppliers;

iii. the participants lacked of training due to distant training locations, transport and health problems; and

iv. the shopkeepers did not use the Point Of Sales (POS) system. This was due to lack of training from suppliers and aging retailers who found it difficult to understand the system. As a result, the POS system functions such as monitoring the sales and stocks of goods, the use of bar code and inventory database that could be linked directly to the consultant could not be used.

b. It is recommended that the Ministry takes the following actions;

i. prior to any renovation of the participants‟ shop lots, a loan agreement should be signed first between the participants and the lenders so that the loan terms and conditions could be enforced;

ii. there should be a requirement in the offer letter or agreement for participation that the retailers should not change ownership or sell their stores to other

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retailers to avoid any practice of making profit after participating in the programme;

iii. KPDNKK should ensure that appointed consultants perform their roles and responsibilities in monitoring the stores continuously in terms of advice, ensuring adequate supply; helping the store layout and providing adequate training;

iv. review on the adequacy of training so that it is in line with the participants‟ environment; and

v. KPDNKK should frequently conduct motivational programmes to encourage traders to give full commitment to their businesses.

MINISTRY OF WORKS 6. Restoration And Upgrading Of Alor Setar-Kuala

Nerang-Durian Burung Road Project, Kedah a. The Restoration and Upgrading of Alor Setar-Kuala

Nerang-Durian Burung Road Project, Kedah was one of the projects under the Ninth Malaysia Plan. The 48 kilometres project from Alor Setar through Pokok Sena, Kuala Nerang and Padang Sanai involved upgrading works and widening of the existing road. The objective of the project was to increase the capacity of traffic access due to development of the General Hospital, Pokok Sena New Town and development of the Durian Burung area as well as an economic catalyst by providing a better, faster and safer connection to users. The RM246.20 million contract was offered to HCM-MOLEK JV through direct negotiation and implemented by design and build method. The project

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was fully completed on 28 October 2012. However, the project was not completed within the original contract period where the contractor was approved 4 Extensions of Time for 3 years due to delay in land acquisition process and relocation of utilities. Audit findings revealed that contract management in advance payments, performance bond and progress payments complied with the stated regulations. Other weaknesses identified were as follows:

i. delay in finalising prices where price negotiation meetings with the contractor only started on 26 Mac 2006 even though the Letter of Intent had been issued on 24 November 2003;

ii. delay in enforcing order to vacate premises on owners even though payments of compensation had been settled;

iii. maintenance works were not carried out by the contractor during the Defect Liability Period; and

iv. the quality of construction works were found to be unsatisfactory during physical inspection by the Audit team.

b. It is recommended that the Ministry of Works and Public Works Department take the following actions:

i. ensure proper planning and effective monitoring to avoid delays;

ii. ensure effective coordination between utility providers and the contractor;

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iii. ensure effective enforcement of contract conditions, in particular road maintenance so that the facilities built are in good condition and could provide optimum benefits to users; and

iv. ensure that there are proper supervision and monitoring on the works done by the contractor.

Public Works Department 7. Construction Of Banting Polytechnic, Selangor a. The construction of Banting Polytechnic, Selangor was

a project under the Ninth Malaysia Plan (RMKe-9). The client of this project was the Ministry of Higher Education (now known as the Ministry of Education Malaysia). The Project Director was the Director of Selangor Public Works Department (PWD). The project was implemented under 2 packages. Package one included earth works and infrastructure works such as drainage system, road works, sewerage system and external water supply system. Package 2 involved building works which consisted of academic complex, lecture theatre, ICT centre, student centre, library, main store, garage, canteen, classrooms/laboratories, TNB substation, guard house and pump house. Both packages under this project were implemented using design and build method through direct negotiation. Audit findings revealed that overall the construction of Banting Polytechnic, Selangor was satisfactory. Even though there was delay in completion and extensions of time were granted, the project was completed within the approved period. Variation Order and Variation of Price were in accordance with the regulations in force and

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contract clauses. However, there were several weaknesses as follows:

i. delay/shortfall in interim payments to the contractor due to insufficient allocation being transferred to Selangor PWD by the Ministry of Education Malaysia;

ii. ground settlement at bus garage, hall, ICT centre, canteen, Sewerage Treatment Plant and Administration Block due to peat soil foundation;

iii. poor quality mechanical and electrical works which may cause serious damages in the future; and

iv. suspended ceiling system was used at outdoor/ semi-outdoor areas which were not suitable as strong winds could blow ceiling boards away from their support grids.

b. It is recommended that PWD and the Ministry of Education Malaysia take the following actions:

i. ensure that the payment to contractor is made within the stipulated time based on work progress done after complete supporting documents are checked and certified. The Ministry of Education Malaysia should ensure sufficient allocation to Selangor PWD for full interim payment;

ii. give due attention to ground settlement problem and ensure that a long-term remedy is taken immediately;

iii. Headquarters of PWD should issue a guideline on buildings constructed on grounds with settlement problems so that contractors could follow the

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procedures to prevent damages to the premises caused by ground settlement;

iv. ensure that all electrical and mechanical aspects were handled properly before handing over buildings to users;

v. state in the PWD Standard Operating Procedure that the usage of suspended ceiling should not be allowed at outdoor areas as it is not suitable and could be easily blown off by strong winds; and

vi. enhance monitoring on contractors to ensure quality works which are in accordance with stipulated standards and specifications.

MINISTRY OF ENERGY, GREEN TECHNOLOGY AND WATER 8. Management Of Green Technology Financing

Scheme a. Green Technology (GT) is defined as the development

and application of products, equipment and systems to protect the nature and environment as well as to minimize or mitigate the negative impacts of human activities in line with the National Green Technology Policy. GT is the driver of economic growth towards sustainable development based on 4 main pillars which are energy, environment, economy and social. The Financing Guarantee Fund for Green Technology also known as the Green Technology Financing Scheme (GTFS) was established to facilitate the development of GT in the manufacturing or service that is capable of producing products and services of GT for local and

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global markets, providing jobs and improving economic growth. Audit findings revealed the following:

i. Financial Performance

268 companies were awarded with Green Certificates for green projects with cost of RM4.8 billion for the period 2010 to 2015. However, 102 (38%) of the 268 companies had received loans from financial institutions amounting to RM1.69 billion as at July 2013;

there was a difference of RM669.84 million in the total guarantee amount recorded by GreenTech Malaysia and Credit Guaranteed Corporation for 24 out of 102 companies which received GTFS financing approval; and

4 key sectors specified in GTFS covering 64.2% Energy Sector; 29.1% Waste and Water Sector; 4.1% Building Sector; 2.6% Transport Sector with a total project cost amounting to RM11.5 billion for 268 companies which had obtained the Green Certificates were not comprehensive.

ii. Company Performance

three (43%) out of 7 producers and one user company with project cost of RM14.6 million and RM10 million respectively were categorised as successful companies (fully operational), while 3 (43%) out of 7 producers with project cost amounting to RM21.5 million were categorized as less successful (not fully operational although funding had been obtained) and 2 companies

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had problems servicing their loans for project cost amounting to RM2.5 million.

There should be continuous monitoring by all parties on the implementation of the GTFS so that its objectives involving products, equipment and systems could be achieved. Some of the observations were:

- GTFS Monthly Progress Reports (GMPR) were not consistently submitted to the GreenTech Malaysia as stipulated in the Work Procedures Manual;

- Monitoring Reports and verification by internal audit of companies were not submitted in a timely manner as stipulated in the Work Procedures Manual; and

- GreenTech Malaysia could not prepare the Project Impact Reports and the Final Project Close Out Reports.

delay in issuance of Green Certification for more than 48 days from the registration date may cause delay in obtaining fund from financial institutions.

b. It is recommended that the Ministry of Energy, Green Technology And Water and GreenTech Malaysia take the following actions:

i. ministries/departments/agencies should be directly involved in GTFS management decisions making and focus on the best value for money for each project/programme/activity under this scheme; and

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ii. enhance intensive monitoring by GreenTech Malaysia and Government agencies involved in the implementation of this scheme while practising financial management with integrity and accountability.

MINISTRY OF EDUCATION 9. Management Of Fundamental Research Grant

Financing Scheme For Public Higher Education Institutions

a. The Ministry of Education (Ministry) is a leader in fundamental research to promote a generation of knowledge that could enhance the intellectual level, the creation of new technologies and the proliferation of a dynamic culture in line with national aspirations. The Fundamental Research Grant Scheme Program (FRGS) awards grants to conduct basic research that could produce theories, concepts and ideas for the advancement of knowledge as well as a catalyst for finding new and innovative creation that could expand the boundaries of knowledge. Under the Ninth Malaysia Plan (RMKe-9), the Ministry allocated RM285 million to finance fundamental research projects in Public Higher Education Institutions (PHEI), Private Higher Education Institutions (PVHEI) and the Branch Universities. The Ministry offered FRGS for application for the first time in 2006. Until the end of 2010, a total of RM284.99 million (99.9 %) was spent. Under the Tenth Malaysia Plan (RMKe-10), research grants was increased to RM1 billion to fund five research programmes including

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the FRGS. Estimated allocation for FRGS was RM340 million. According to Prof. Dato' Seri Ir. Dr. Zaini Ujang, there was an increase in the quality and quantity of research in the percentage of publications for 2012 compared to 2007. Malaysia recorded the highest increase (310.08%) compared to several countries in ASEAN. In the implementation of the programme, there were weaknesses in the performance of the research projects (project). The projects completed within the stipulated period were only 61.1% or 1,309 out of 2,144 projects approved for 2010. Whereas for the financial year 2010, RM87.36 million (82.1%) was spent from the allocation of RM106.39 million. There were also other weaknesses as follows:

i. as at August 2013, only 98 (19%) out of 517 projects approved in 2011 had been completed;

ii. only RM27.95 million (64.9%) was spent from the RM43.06 million allocated in 2011;

iii. the research output was still low as the aspire to train students through research projects only achieved 62.1 %;

iv. there was still a remaining balance of RM13.44 million in the programme fund and a proper procedure for its management was not prepared;

v. monitoring on the FRGS programme was not effective because researchers and the Research Management Centre (RMC) in universities did not submit full progress reports. Besides that, an analysis to identify research projects which did not

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comply with the conditions and follow-up action were not carried out; and

vi. management of research assets was unsatisfactory in terms of control in assets acquisition, registration, usage and movement.

b. It is recommended that the Ministry takes the following actions:

i. the Ministry should strictly monitor on the physical and financial performance of the project by ensuring project completion within the stipulated period, comply with the conditions of the future grants given based on previous projects performance as well as carrying regular inspections in PHEI;

ii. the Ministry should establish clear guidelines/ procedures and mechanism regarding the management of the fund balance and ensure that the records are updated in PHEI and the Ministry as well as new grants are offset against the remaining research funds in PHEI;

iii. the Ministry should be firm in ensuring that performance and financial reports of the research projects are prepared and submitted by the researchers and RMC within the stipulated period. The Institute Of Higher Education Excellence Planning Division (BPKI) should analyse the results of the research project and subsequently follow up on projects that did not comply with the conditions of the agreement;

iv. the Ministry/PHEI should ensure that assets purchased under research funds are effectively

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controlled and supported by the updated records and clear usage rules on assets used for research purposes should be established. This is to ensure that the assets are not being misused and returned after the project is completed so that they could be used for other research projects thus saving Government money; and

v. the Ministry should empower PHEI management to monitor research project and take appropriate action against weaknesses. In addition, the Ministry could also use the Internal Audit Division of PHEI and the Ministry as part of the monitoring agents to ensure that FRGS management programme could be implemented more efficiently and effectively.

MINISTRY OF HEALTH 10. Management Of Rehabilitation Programme For

Malnourished Children

a. The Ministry of Health Malaysia (Ministry) had launched the Rehabilitation Programme for Malnourished Children in 1989. This programme aimed to improve the nutritional status of children from hardcore poor households (household income less than RM430 or RM110 per capita for Peninsular Malaysia; less than RM540 or RM115 per capita for Sabah and less than RM520 or RM115 per capita for Sarawak) between the age of 6 months to 6 years old who were underweight to normal weight within 6 to 12 months after receiving food assistance (food basket). Children who were diagnosed with malnutrition and met the criteria set were eligible to

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get the food baskets that contained two basic ingredients which were food and multivitamins. This was to help them have a balanced and nutritious diet so that they could have optimum physical and mental growth. The children were also given close attention and appropriate treatment on any sickness, health education and proper health care. There were 13 choices of food basket available to qualified children with an estimated price of RM150 for each basket. In 2006, Malaysia gained recognition from the United Nation Children‟s

Fund (UNICEF) as the fastest country in East Asia and the Pacific in improving the nutritional status of children under the age of 5. In 2010, under the National Key Results Areas (NKRA), this programme was extended to the poor and vulnerable poor family (household income less than RM2,000 a month) through the 1Azam programme. Meanwhile, in 2012, under the Government Transformation Programme, this programme was also extended to the natives in Perak, Pahang and Kelantan through the Community Feeding Programme (PCF) and the provision of food baskets. For the period 2011 to 2013, this programme was allocated a total of RM66.51 million and as at August 2013, RM55.3 million (83.2%) was spent. Audit findings revealed that the overall Rehabilitation Programme for Malnourished Children conducted by the Ministry was satisfactory. However, there were several weaknesses as follows:

i. Key Performance Indicators for weight recovery did not reflect the actual weight recovery for the underweight children;

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ii. underweight children only achieved normal weight after 12 months which was not within the 6 to 12 months period as per programme objectives;

iii. unit price per food basket was not in accordance with the guidelines;

iv. food basket contents/items were not in accordance with the guidelines and had been modified by the nutrition officer based on the request of the recipients and budget allocated including a reduction in quantity;

v. allocation of food basket was spent for other purposes including purchase of assets and equipment, furniture, hampers as well as food and beverages for meetings; and

vi. weaknesses in store management where store officials and stock recipients were not appointed, stock records were not maintained according to procedures and stocks were not kept properly.

b. In order to ensure that the Rehabilitation Programme for Malnourished Children is carried out properly and efficiently throughout Malaysia, it is recommended that the Ministry considers the following actions:

i. children who suffer from prolonged health problems and require special attention should be listed in other more specific programmes to overcome cases which take long time to recover;

ii. justification for the addition and modification of the food basket contents should be specified in the guidelines, notified in writing and approved by the responsible officer;

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iii. standardise the menu for the Community Feeding Programme for all states involved and review on the requirements for giving out food baskets aid each month for those children who have participated in Community Feeding Programme for savings purposes;

iv. provide exposure on the administration of Government contract documents and store management especially for officers in District Health Office; and

v. authentication for household income must be made in writing such as through copies of income statements; confirmation from the Heads of Village/ Tok Batin; confirmation from Baitulmal, Zakat and so on. In addition, the Ministry also needs to verify the eligibility of the receivers by checking their overall property and not only depending on their family income alone.

MINISTRY OF HEALTH 11. Management Of Biomedical Engineering

Maintenance Services a. Biomedical Engineering Maintenance Services (BEMS)

was one of the support services that was crucial in ensuring smooth services to patients. The Ministry of Health had privatised 5 types of support services to 3 concessionaires since 1 January 1997 to increase the level of efficiency. BEMS was one of the support services privatised. The privatisation agreements were signed for a period of 15 years (28 October 1996 until

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27 October 2011). This programme was executed by three concessionaires, namely Faber Medi-Serve Sdn. Bhd., Radicare (M) Sdn. Bhd. and Pantai Medivest Sdn. Bhd. The BEMS objectives, among others, were to ensure that all medical equipment are comprehensively maintained, functioning and safe for use. As at 14 May 2013, the concessionaires were responsible to manage the maintenance services of 185,281 medical equipment across the country. Audit findings revealed that performance-related expenditures of BEMS was satisfactory. In addition, the Key Performance Indicator (KPI) of BEMS in terms of service uptime exceeded its targeted index. However, there were several weaknesses as follows:

i. most of medical equipment had exceeded their prescribed economic age between one to 23 years;

ii. additional agreements were signed late between 123 to 2,286 days;

iii. additional fee of RM5.74 million for commissioned equipment was underpaid and RM1.49 million of fees for decommissioned equipments was overpaid. Wherereas, fees for 1,570 equipment amounting to RM42.27 million were yet to be paid and 829 equipment amounting to RM11.19 million which had been cancelled were still being paid;

iv. actual fees paid were different from approved amount resulting in overpayment of RM109,654 for Hospital Tuanku Ampuan Rahimah (HTAR) and Makmal Kesihatan Awam Johor Bahru (MKAJB) and underpayment of RM106,588 for Hospital Wanita Dan Kanak-Kanak (HWKK);

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v. The Preventive Maintenance Plan (PPM) was not carried out for a period of 12 to 32 months whereas fees of RM1.68 million were still being paid for 113 equipment which were not being maintained. In addition to that, maintenance fees for 16 equipment involving RM2.56 million were still being paid despite the fact that they were damaged/not used;

vi. 51 equipment worth RM2.80 million which had been issued with KEW.PA-16 certificates since 2010 were not disposed; and

vii. 445 equipment worth RM2.45 million in HTAR were categorised as Asset Not Found (V4L) and yet maintenance fee of RM9,346 was still being paid for 26 of them. The status of maintenance fee for the other 419 equipment could not be verified.

b. In order to rectify the weaknesses highlighted and to further improve the quality of BEMS, the Ministry should consider the following:

i. sign new agreements with the counterparties as soon as possible to protect the Government‟s interests as well as adhering to financial regulations;

ii. plan on acquisition of new medical equipment to replace the damaged/obsolete equipment;

iii. ensure that fees are paid properly to avoid over or under payment. Besides, the accuracy of Central Management Information System data should be well monitored since such data was the main reference for the Ministry on assets management;

iv. issue SNF (Notis Untuk Mula/Tamat Perkhidmatan) for idle/damaged/V4L equipment and stop paying maintenance fees for them. Periodic inspection of

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assets should be done according to regulations to ensure the existence of all assets;

v. ensure that maintenance services are carried out according to schedule, collect back the fees and impose fines on the concessionaires for non-compliance; and

vi. lodge a Police Report and prepare the Initial Report for lost equipment and payment for the related maintenance fees should be stopped immediately.

MINISTRY OF HEALTH 12. Management Of Inhouse Meals In Hospital

a. Dietetic and Culinary activity is a clinical support unit under the Medical Development Division which offers two types of services namely clinical dietetic and meals. The objectives of this activity are to provide nutritious food to patients, act as a complement to the overall treatment and providing medical nutrition therapy to improve the nutritional status of patients. Meals are provided according to the class wards such as ward 1, 2, 3 and children as well as by the type of diet either a normal diet or therapeutic diet which will be determined by the Dietician. The Dietetic and Culinary Department in hospital implements 3 methods to obtain supply of wet and dry food for patients via tenders, quotations and direct purchases. However, items such as chicken, eggs, bread, rice, noodles, seri kaya, chilli sauce, ketchup, soy sauce, fruit flavoured cordial, tea, coffee and curry powder are obtained through the Central Contract Panel System. For the period 2011 to 2013, this activity was allocated RM395.54 million and a

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total of RM353.72 million (89.4%) was spent. Audit findings revealed that food supply expenditure and cost control of each meal were satisfactory. In addition, management of meals was in order and the number of food contamination cases was low. The stock control was also efficient and effective. However, there were several weaknesses as follows:

i. calculation method of the National Indicator Approach for food contamination cases in 2013 was not accurate because when the number of meals increases, the percentage of contamination cases decreases;

ii. contract administration on food supply was unsatisfactory as food samples testing was not done on a periodic basis and price of the food items in the contract was unreasonable compared to the market price;

iii. splitting procurement for food into smaller quantities to avoid calling for tenders and quotations;

iv. scale portion of the diet meals for adults and children did not follow the guidelines;

v. diet meal delivery was unsatisfactory such as inadequate bain-marie at HKL and HUK, 169 of the 193 non-heated trolleys were not replaced by heated trolleys, food testing was not done for every meal and food testing forms were not complete;

vi. asset management was not in order such as assets worth RM0.13 million were not used at the Responsibility Centres visited; and

vii. monitoring on the premises and suppliers performance was unsatisfactory.

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b. It is recommended that the Ministry considers the following:

i. plan procurement carefully and monitor the price of food items and compare with market price so that the Government gets value for money;

ii. Dietetic and Culinary Department should work together with the Wards to ensure accurate information on additional orders and discharge patients so that correct amount of meals are prepared;

iii. Dietetic and Culinary Department should ensure that the suppliers are able to provide a variety of wet food according to the planned menu and contract specifications so that patients obtain a complete and nutritionally balanced diet in line with the main objective of dietetic and culinary services;

iv. ensure sufficient fund allocation so that kitchen appliances such as bain-marie and heated trolleys could be fully provided;

v. provide sufficient staff to ensure that monitoring on the stipulated scale portion of food, cleanliness of food handlers and food testing processes could be done properly;

vi. ensure that the work process for each activity of the inhouse meal management in hospital is stated clearly to help staff carry out their duties; and

vii. educate staff involved on Treasury Circular No. 5 of 2007 (Guidelines On Government Movable Asset Management) to improve their skills in asset management.

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MINISTRY OF HEALTH 13. Management Of 1Malaysia Clinic

a. 1Malaysia Clinic (K1M) was launched in line with the concept of 1Malaysia "People First, Performance Now‟.

The establishment of K1M was initially intended to provide assistance for minor medical treatment to low-income urbanites in areas with high population density as well as facilitating access to treatment. K1M offered treatment on mild diseases such as fever, cough and flu; mild treatment procedures such as cleaning wounds and removing stitches; simple laboratory testing (point of care test) such as glucose test and urine test using urine dipstick; stabilize patients before referring them to nearby hospitals for emergency cases and give advice and promote health care to patients. Criteria for the location of K1M taken are downtown area with high population density, easily accessible by the public and with the consent of the representatives of the local community/Legislative Assembly/Members of Parliament. Audit findings revealed that the overall management of K1M was good. The implementation of K1M had achieved its objectives in providing quality primary health care services to low-income groups in urban areas. However, there were several weaknesses as follows:

i. the achievement of the objective in reducing the burden of patients in terms of waiting time to be treated could not be determined for 19 K1M as only 6 out of the 25 visited K1M prepared the waiting time report;

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ii. one K1M were located in less densely populated areas with no access to public transportation;

iii. shortage of permanent staff in K1M resulted in manpower being borrowed from Health Clinic/State Health Department and incurred overtime payment of RM1.39 million for the period of 2011 to 2013;

iv. delay between 12 to 26 months in finalising the agreements for 5 K1M premises rented in Sarawak although the mentioned K1M were in operation and the rental had been paid. The rental agreement for the K1M premise in Gadek, Malacca was signed by the Deputy Director of Health (Medical ) who was not authorised by the Minister of Health; and

v. monitoring on K1M through visits of the Technical Audit team was not carried out as scheduled.

b. To overcome the shortcomings raised and to avoid recurrences, it is highly recommended that Ministry of Health Malaysia undertakes the following measures:

i. ensure that all K1M prepare the waiting time for treatment reports to evaluate its objective in reducing the burden of patients in terms of waiting time;

ii. ensure that the location and establishment of K1M follow criteria set such as in urban areas with high population density and easily accessible;

iii. apply for permanent posts in K1M immediately to reduce staff workload and improve service performance of K1M;

iv. expedite the rental agreement with the owner of the premises in Sarawak to ensure smooth operation of K1M; and

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v. ensure that effective monitoring is carried out in K1M and if the Technical Audit visits on a weekly basis is difficult to achieve, the visit frequency should be reviewed.

MINISTRY OF HUMAN RESOURCES Manpower Department 14. Procurement Of Learning Equipment For Advance

Technology Training Centre And Industrial Training Institute

a. For the period 2009 to 2011, the Ministry of Human Resources (MOHR) built 5 Advance Technology Training Centres (ADTEC) namely Taiping ADTEC in Perak, ADTEC Kemaman in Terengganu, Jerantut ADTEC in Pahang, Bintulu ADTEC in Sawarak and Marang Industrial Training Institute (ILP) in Terengganu with a total cost of RM698.61 million. In order to ensure that all the institutes operate effectively, the Ministry of Finance appointed 6 contractors through direct negotiation for the procurement of learning equipment in ADTEC and ILP with a total cost of RM291.97 million. Audit findings revealed that in general, MOHR and the Manpower Department had taken reasonable steps in ensuring smooth procurement process and compliance with procedures. Among the steps taken were conducting value management sessions to study the best value for money in procurement; empowering and appointing the Negotiation Price Committee; conducting negotiation process in accordance with procedures and documenting the negotiation process properly. Besides

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that, the process of receiving and storage of equipment at ADTEC was managed properly. Even though reasonable steps had been taken, Audit findings revealed several weaknesses as follows:

i. supply of learning equipment was not completed within the original contract period/extension of time approved due to several factors such as the milestone schedule was not included in the contract and as a result, monitoring could not be carried out effectively. Besides, delay was caused by the additional work that should be done first before equipment could be supplied;

ii. the Manpower Department approved 87 additional works related to the installation of equipment at Taiping ADTEC, Kemaman ADTEC and Jerantut ADTEC with a cost of RM3.45 million. The long interval between the completion date of the building and the supply date of the learning equipment which ranged from 299 to 1,080 days was one of the factors causing the additional works. The construction of the Institution building was based on the specification of the equipment set in 2007 and 2008, but these equipment specifications were reviewed in 2011 to suit current needs. Changes in specification caused the Government to incur extra cost to modify the workshop to accommodate this equipment. This resulted in delay in the supply of equipment;

iii. the Manpower Department approved additional works at Jerantut ADTEC with a cost of

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RM1.38 million that was not related to the installation of the equipment. These works should be done during the construction phase;

iv. there were equipment supplied for the same course but of different brands, models, specifications, prices and origin countries (foreign exchange rate caused increase in cost of the equipment); and

v. improper contract administration where the performance bond was submitted late and contract was signed late.

b. It is recommended that the Ministry and the Manpower Department take the following actions:

i. enhance effective monitoring to ensure supply of learning equipment is completed within the stipulated period. Therefore, the milestone schedule should be included in the contract;

ii. coordinate the procurement of equipment with the building construction to avoid extra cost being incurred on additional works;

iii. create a database that stores complete information about the models, specifications and prices for the equipment supplied to various institutions under the Manpower Department. This would create uniformity in model, specification and price of the equipment and help the Manpower Department to provide accurate estimated departmental price; and

iv. give serious attention to the administration of contracts to protect the interest of the Government.

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MINISTRY OF DEFENCE Malaysia Armed Force 15. Management Of Malaysian Armed Forces Medical

Equipment Procurement a. The Division Of Health Services (BPK), under the

administration of the Malaysian Armed Forces (ATM MK) is responsible for providing efficient and comprehensive health care and dentistry services to the Malaysian Armed Forces (ATM) and their families. It is also responsible for managing and training human resources in ATM, especially the Royal Medical Corps. The military health services include medical and dental Depots; 4 Military Hospitals (HAT); an Army Hospital; 18 Armed Forces Hospital (RSAT); 10 Army Medical Centres (PPAT); 32 Army Dental Centres (PGAT); 37 Regimental Medical Centres; 2 Medical Battalions; a Medicine Company; a Special Forces Groups Medical Company; School of Medical and Dental Corps, now known as Health Training Institute and the Institute of Aviation Medicine and also the Institute of Underwater and Hyperbaric Medicine (IPBAH). Audit findings revealed that procurement of medical equipment through direct negotiations, tender and quotation was satisfactory. However, procurement through direct purchase was not satisfactory due to non-compliance with the procedures and regulations in force. In addition, there were also weaknesses in the enforcement of contract clauses, process in receiving equipment, usage, storage and maintenance. Among the weaknesses observed were as follows:

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i. poor management and enforcement of contract clauses;

ii. procurement of disposable medical supplies (BPPB) at HAT Tuanku Mizan was not in line with the financial regulations;

iii. medical equipment received in HAT Tuanku Mizan and HAT Wilayah Kota Kinabalu were not managed properly;

iv. some purchased equipment were not used optimally and some were not yet used. In addition, there were also disposable medical supplies at HAT Tuanku Mizan which had already expired or will be expiring in June 2014;

v. inappropriate equipment storage; and vi. contract for equipment maintenance was not yet

finalised.

b. It is recommended that the Ministry of Defence (Ministry) and the relevant parties consider the following:

i. the Ministry Of Defence and the Ministry Of Finance should give due attention to the health programme and provide ATM with sufficient financial allocation for the procurement and replacement of medical equipment;

ii. the Ministry should give due attention to the administration of contracts to safeguard the interests of the Government and ensure efficiency in the execution of the Government procurement process;

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iii. the Ministry and all Responsibility Centres should ensure that procurement and acceptance of BPPB are done according to financial and internal controls procedures. This is to avoid overstock and wastage due to expired stocks;

iv. the Ministry and all Responsibility Centres should ensure that testing and commissioning as well as training to users are carried out before full payment is made. Testing and commissioning should be conducted to ensure that the procured equipment are functioning well and meet the required specifications;

v. HAT Tuanku Mizan should immediately update record BAT L to improve its inventory management system as well as setting on requirement level. Wastage may occur in procurement without planning;

vi. the Ministry should get additional posts (professional and public) in each hospital so that the delivery of medical service could be enhanced. For HAT Wilayah Kota Kinabalu, proactive measures should be taken to ensure that approved posts are fully filled; and

vii. the Ministry should expedite the contract of medical equipment maintenance so that scheduled maintenance works and repairing of equipments could be carried out immediately. This is to ensure that medical equipment are always in good condition.

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MINISTRY OF HOME AFFAIRS People’s Volunteer Department Of Malaysia 16. Management Of The People’s Volunteer Corps

a. Volunteers of Malaysian People (RELA) was established on 11 January 1972 under Section 2, Emergency (Essential Powers) Act 1964. It was regulated under the Emergency (Essential Powers) Act 1964 – Essential Rules (Ikatan Relawan Rakyat) (Amendment) 2005. On 21 June 2012, the Emergency (Essential Powers) Act 1964 – Essential Rules (Ikatan Relawan Rakyat) (Amendment) 2005 was repealed and replaced by the People‟s Volunteer Corps Act 2012

which came into force on 22 June 2012 and enacted on 25 June 2012. Hence, the name Volunteers of Malaysian People was changed to the People‟s

Volunteer Corps. However, on 28 August 2013, the Cabinet decided to upgrade the People‟s Volunteer

Corps into a department namely the People‟s Volunteer

Department (RELA) of Malaysia. Among the functions and responsibilities of RELA are to ensure safety, peace, welfare and harmony to the community by being the “eyes” and “ears” of the Government in terms of security, socio-economy and development aspects. Audit findings revealed that the overall management of RELA‟s volunteers need to be improved. Among the weaknesses identified were as follows:

i. planned trainings were not conducted and many volunteers did not attended the RELA Introductory Briefing;

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ii. poor internal controls on financial management as there were instances where cash was brought back from the bank to RELA State Office without any security escorts;

iii. there was no approval for procurement of uniforms which were not made through Central Contract Panel System and the management of uniforms was not in order; and

iv. delay in resolving 21 public complaints.

b. It is recommended that the Ministry of Home Affairs and RELA consider the following actions:

i. ensure that the modules for Assignments and Training are being prioritised during the development of Phase II MyRELA system so that a complete and updated information pertaining to members who have performed assignments and attended trainings/briefings could be prepared. Additional training allocation should be applied to train newly recruited volunteers;

ii. prepare standard format for application forms, approval letters and assignment letters to be used by all RELA offices and the allowance rate for community service should be informed to applicants;

iii. ensure proper management of cash to be distributed to RELA‟s volunteers and compliance

with existing regulations; iv. ensure that procurement is in compliance with

existing regulations in order to get best value for

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money and safeguard the Government‟s interest. Stern action should be taken against officers who do not comply with the Government‟s financial regulations; and

v. ensure that the distribution of uniforms in RELA offices are managed properly and efficiently and sufficient stores for uniforms are provided.

MINISTRY OF HOME AFFAIRS Prison Department Of Malaysia 17. Management On Procurement Of Bread

Equipment And Machine a. The Industrial Prison Programme was one of the special

programmes introduced by the Prison Department of Malaysia (PDM).The main objectives of this programme were to provide skills to prisoners so that they could be more productive and ready to enter the job market after being released; introduce the latest technology in implementing industrial programmes and enable savings on operating costs of the PDM. To ensure the success of the Industrial Prison Programme, the Division of Prison Policy had proposed to implement the Bread Industry Self-Sufficiency Programme in 2013. Based on planning, the Bread Industry Self-Sufficiency Programme worth RM27.13 million would be implemented in two phases whereby the internal markets would be implemented from 2013 to 2015 and foreign markets expected to be implemented in 2016. Although the programme was planned to start in 2013, PDM applied for an allocation of RM1.50 million to start

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the pilot project since there was extra allocation saved from the Safe City Programme under the National Key Results Areas. A total of RM1.20 million was approved and warrants were distributed to 5 Prison Institutions namely the Kajang Central Prison, Sungai Udang Prison, Seremban Prison, Kajang Female Prison and Bentong Prison in November and December 2012 to enable the procurement of bread equipment and machine. Audit findings revealed that the Prison Institutions had complied with several matters relating to the procedures for procurement of equipment and machine such as the appointment of Quotation Committee, membership of Quotation Committee and carrying out market studies prior to making acquisition. The bread workshop in Kajang Central Prison started its operation since January 2014. However, management on procurement of bread equipment and machine was less than satisfactory due to several weaknesses as follows:

i. technical inspection was not carried out by qualified personnel upon receiving the bread equipment and machines;

ii. waffle baker and chiller supplied were not in accordance with specifications;

iii. full payment of RM1.16 million had been made even though conditions of the contract were not yet fully complied with;

iv. weaknesses in procurement, such as appropriate workshops were not provided to place bread equipment and machines purchased; and

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v. bread equipment and machines were kept in inappropriate places such as car parks and places that were exposed to heat and rain.

b. It is recommended that PDM considers the following actions:

i. ensure that the procurement of bread equipment and machine for Industrial Prison Programme complies with rules and principles of procurement;

ii. ensure that contract clauses safeguard the Government‟s interest such as providing clauses relating to progress payments;

iii. appoint qualified officers in writing to receive and inspect assets that require technical inspection; and

iv. all equipment and machines purchased should be placed and stored in appropriate and safe place and ensure that they could be used in accordance with the objectives of purchase.

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PART II MANAGEMENT OF GOVERNMENT COMPANIES 18. Cradle Fund Sdn. Bhd. a. Cradle Fund Sdn. Bhd. (CFSB) was incorporated on

31 December 2003 as a private limited company under the Companies Act 1965. At its inception, CFSB was a subsidiary of Malaysia Venture Capital Management Berhad (MAVCAP) with an authorised capital of RM100,000 and paid-up capital of RM2. On 31 December 2009, the Government took over CFSB through the Minister of Finance Incorporation (MoF). In 2013, CFSB increased its authorised capital to RM5 million. Currently, CFSB has a paid-up share capital of RM5 million out of which a total of RM4.99 million is owned by MoF and one share is owned by the Federal Lands Commissioner. The objective of CFSB is to assist innovative entrepreneurs to transform ideas in technology through grants from the Government. CFSB provides two grant programmes which are the Cradle Investment Programme (CIP) Catalyst for the development of prototypes for new ideas and the Cradle Investment Programme 500 which fund the commercialisation of new products. As a Government-owned company, CFSB is required to comply with laws and regulations under the Companies Act 1965 and other regulations relating to Government companies issued by the Ministry of Finance. Audit findings revealed the following:

i. CFSB solely depends on Government grants to cover all its expenses because the company has no

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other income and its main function is only to manage grants from the Government. As at 31 December 2012, retained earnings of CFSB was RM5.61 million which derived from the interest and dividend income received from investments in unit trusts. These investments were made using the balance of unutilised grant funds;

ii. Audit analysis on the questionnaires showed that all respondents agreed that the CIP should be continued in the future. This programme has helped in realising the idea of entrepreneurs. However, the management of grant activities should be improved and the weaknesses identified were as follows:

weaknesses in the planning of CIP grant which resulted in ambiguous terms and conditions on grant expenditure. Consequently, the method of grants distributed to CFSB was unclear, allowable expenses were not defined and the balance of CIP grants was used for investments in mutual funds at risk of incurring loss;

Standard Operating Procedures (SOP) and Guidelines on Management of Cradle Investment Programme (CIP) were incomplete, leading to weaknesses in the management of CIP grants;

9 Letters Of Award (LOA) issued differ from the approval by Seed Approvals Committee (SAC);

weaknesses in the appointment and payment to mentors, such as no mechanism in determining the work performed by mentors before payment was made;

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weaknesses in making payment, where 82 out of 99 payments audited were late between 12 to 166 days; payment of RM141,428 was made without the approval of the authorised officer and a total amount of RM58,480 was paid to the recipients before the agreement was signed;

25 expired projects were not cancelled. As a result, a financial commitment for the project involving a total of RM4.36 million was not cancelled;

arrears due from the recipients (reimbursement grants) amounting to RM1.29 million was not recorded in the financial statements of CFSB and was not monitored; and

due diligence cost amounting to RM468,650 was not collected from grant recipients as stipulated and was treated as an expense in the financial statements of CFSB.

iii. Corporate governance was good in terms of membership and Board meetings. However, Audit Committee and the Internal Audit Unit should be established. For financial management, there were weaknesses as follows:

Guidelines and Standard Operating Procedures (SOP) for financial management were not prepared;

Weakness in management of payment vouchers such as bills/invoices were not stamped with the date of receipt, no cancellation on the documents

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which were already paid; 82 payment vouchers worth RM749,915 was not supported with bills/ invoices; 102 payment vouchers worth RM1.37 million was not approved with complete signatures required and 204 payment vouchers worth RM226,352 was prepared using cash cheques;

cash advances granted to employees were not recorded as due from employees and had been recorded as expenses; and

bonus for CFSB‟s staff was overpaid by a total of

RM154,929.

b. It is recommended that the parties involved consider the following:

i. CFSB and the grantor should specify the terms and conditions of the grant so that grant management could be more organized;

ii. CFSB should prepare a comprehensive SOP on CIP management to ensure that the management and monitoring of the CIP could be executed effectively;

iii. CFSB should prepare a complete SOP on collection process of outstanding debt and increase efforts to collect back outstanding debts from recipients;

iv. CFSB and the grantor should set the impact after the implementation of the grant so that each dollar spent benefits CFSB and targeted groups. This assessment is also important for the grantor to decide whether to continue giving the grant or not;

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v. CFSB should prepare a comprehensive KPI to evaluate the achievement of the outputs and outcomes of CFSB;

vi. CFSB should get approval from the Ministry Of Finance for investment in mutual funds which was made using the grant fund;

vii. CFSB should establish an Audit Committee and the Internal Audit Unit to create a check and balance mechanism and to monitor all audit issues raised; and

viii. CFSB should immediately prepare SOP related to financial management to ensure that all financial transactions are appropriately executed and effectively monitored.

19. Malaysia Technology Development Corporation Sdn. Bhd.

a. Malaysian Technology Development Corporation Sdn. Bhd. (MTDC), which was incorporated on 10 March 1992 under the Companies Act 1965, is a wholly owned subsidiary of Khazanah Nasional Berhad with an authorised capital of RM200 million and paid up capital of RM116 million. MTDC„s objective is to promote technology advancement by local companies through commercialisation activities by local invention or acquisition of foreign technology. MTDC plays a role in the management of grants, incubator, consultation and nurturing services. Since the Seventh Malaysia Plan, MTDC has become a major player in commercialization, managing Government grant and promoting technology-

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based companies. Audit findings revealed that the overall financial performance of MTDC was less than satisfactory. MTDC recorded gross profits for the year 2010, 2011 and 2012 which were RM2.12 million, RM8.24 million and RM4.11 million respectively. Meanwhile, MTDC recorded net loss for the 3 years which were RM8.23 million, RM17.34 million and RM31.73 million respectively. One of main factors causing the loss was the provision for value diminution of investments for the three years amounting to RM7.67 million, RM24.78 million and RM34.22 million. In general, its activities were carried out in properly and in accordance with the objectives set. However, there were several weaknesses as follows:

i. some Key Performance Indicators (KPI) were not achieved;

ii. approval and reimbursement performance did not achieve its target;

iii. planning on the grant programme was not comprehensive and affected the performance of the grant activities;

iv. promotional activities was not effective and focused on the urban areas due to incomprehensive planning;

v. there was increase in provision for diminution in value of investments;

vi. weaknesses in incubator tenancy management; vii. grant received was not recorded in the annual

financial statements thereby not reflecting a true and fair view;

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viii. weakness in management of fixed deposit interest due to ineffective planning and monitoring; and

ix. delay in the approval and reimbursement of the grant which affected project implementation.

b. It is recommended that the parties involved take the following actions:

i. the Board should closely monitor the level of KPI achievement and grant reimbursement to ensure that the right business strategy is set up in order to increase the level of achievement of the KPI as well as grant reimbursement in accordance to the grant‟s

objectives; ii. the management should make a comprehensive

planning by taking into consideration important planning elements before preparing the paperwork and conducting performance reviews of previous projects;

iii. the management should conduct a preliminary review before deciding on the criteria for grant application and evaluation to ensure that the basis of criteria is consistent with the Government's objective to improve the ability of local companies in technology enhancement. In addition, the level of awareness to the targeted recipients should be enhanced by improving the promotion activities;

iv. the Board should re-evaluate its investment activities by setting policies on investment limits on all three portfolios so that the core objectives of MTDC could be achieved and avoid facing risk of

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investment loss which could affect the liquidity of the company;

v. the Management should closely monitor the management of arrears for incubator rental by setting clear rules and policies and maintaining a complete database;

vi. the Board and the management should ensure that all grants received are accounted in the accounts of MTDC to promote the transparency and accountability in the management of Government grants; and

vii. the Board should ensure that corporate governance practices are enhanced at all levels in the Board committees in terms of attendance and conducting meetings.

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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 programmes/activities/projects 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;

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

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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 best value for money for the expenditure incurred. The objectives of the programmes/activities/ projects were also not fully achieved and did not give much impact on targeted groups. In this regard, it is recommended that:

i. 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 gets best value for money;

ii. integrated planning among agencies involved needs to be carried out at the early stage of project implementation especially for big projects. For example, Department of Sewerage Services, Department of Environment, Department of Irrigation and Drainage 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;

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iii. the Ministries/Departments need to comply with the 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;

iv. 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 Government‟s procurement

should be requested to submit information on paid-up capital and their financial position for the last 3 years and a list of past and present Government/ private contracts involved. Companies are also requested to disclose 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;

v. 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; and

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- procurement of equipment should be coordinated with the progress of the building construction. For this purpose, the schedule of equipment supplied should be done beforehand to prevent unused equipment from being exposed to damage and theft as well as the expiration of its warranty period before being utilised.

vi. Controlling Officers/Heads of Department 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 in preparation for the Federal Government to move towards accrual accounting in 2015;

vii. 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;

viii. 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 action that maybe imposed against them for failing to perform their duties as specified; and

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ix. Government companies should ensure good financial performance; implement their activities properly and achieve the set objectives; and their financial management and corporate governance are in line with the rules and regulations stated.

x. As a sign of commitment, the Controlling Officers of various Ministries/Departments/Agencies should take actions on matters raised by the Auditor General and report to the Continuation Auditor Sector so that actions taken could be updated in the Dashboard System of the National Audit Department.

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 Government‟s 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 Results Areas (NKRA).

National Audit Department Putrajaya 18 February 2014

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