FEDERAL STATUTORY BODIESFOR THE YEAR 2010

NATIONAL AUDIT DEPARTMENTMALAYSIA

AUDITOR GENERAL REPORT

AUDITOR GENERAL’S REPORT FEDERAL STATUTORY BODIES

FOR THE YEAR 2010

SYNOPSIS

ON THE AUDIT OF FINANCIAL MANAGEMENT AND ACTIVITIES OF FEDERAL STATUTORY BODIES AND

MANAGEMENT OF SUBSIDIARY COMPANIES

NATIONAL AUDIT DEPARTMENT MALAYSIA

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CONTENT

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Page PREFACE vii PART I FINANCIAL MANAGEMENT OF FEDERAL STATUTORY BODIES xiii PART II IMPLEMENTATION OF ACTIVITIES BY FEDERAL STATUTORY BODIES

1. MALAYSIAN HIGHWAY AUTHORITY xiii - Project Management On Senai Desaru Highway

2. NATIONAL SPORTS COUNCIL xv

- Management of Sport Grants

3. INDIGENOUS PEOPLE’S TRUST COUNCIL xvii - Management Of Courses For The Hard Core Poor Under The

Second Economic Stimulus Package

4. UNIVERSITY MALAYA MEDICAL CENTRE xviii

- Project Management On Total Hospital Information System

5. MALAYSIA TOURISM PROMOTION BOARD xx - Management Of Procurement On Advertising And Promotion

Support Activities

6. PILGRIMAGE FUND BOARD xxii

- Management Of Procurement

7. THE CENTRAL TERENGGANU DEVELOPMENT AUTHORITY xxiii - Management Of Housing Aid Programme Under The First

Economic Stimulus Package

8. RUBBER INDUSTRY SMALLHOLDERS DEVELOPMENT

AUTHORITY xxv

- Management Of Housing Aid Programme Under The First Economic Stimulus Package

CONTENT

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Page

9. KEMUBU AGRICULTURAL DEVELOPMENT AUTHORITY xxvii - Management Of Agriculture Entrepreneur Development Programme

10. UNIVERSITY MALAYSIA PAHANG xxviii

- Management Of Permanent Campus Construction Project Phase 1A

11. LANGKAWI DEVELOPMENT AUTHORITY xxx

- Management On The Construction Of Extension Of Kota Mahsuri Additional Building

12. MALAYSIA STADIUM BOARD xxxii

- Management Of Sport Complex Amenities

13. FEDERAL TERRITORY ISLAMIC RELIGIOUS COUNCIL xxxiii - Management Of Building Maintenance

14. UNIVERSITY TECHNOLOGY MARA xxxv

- Management Of Equipment

15. NATIONAL POPULATION AND FAMILY DEVELOPMENT BOARD xxxvi - Management Of Contraceptive Supplies and Medical Equipment

16. MALAYSIAN HEALTH PROMOTION BOARD xxxviii

- Management Of Grants To Non-Government Organisation

PART III MANAGEMENT OF FEDERAL STATUTORY BODIES SUBSIDIARY xxxix COMPANIES

17. MANAGEMENT OF MAJUIKAN PTE. LIMITED (Subsidiary Of Fisheries Development Authority Of Malaysia)

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PREFACE

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1. The Statutory Bodies Act (Accounts and Annual Report) 1980 (Act 240) requires all Federal Statutory Bodies to submit their annual financial statements to the Auditor General to be audited. The respective Minister is required to table in Parliament as soon as possible the audited financial statements together with the annual report. To fulfill these responsibilities, the National Audit Department needs to carry out 3 types of audits as follows:

1.1. Financial Statement 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 as well as its accounting records have been maintained properly and updated accordingly.

1.2. Financial Management Audits – to determine whether the financial

management at the Federal Statutory Bodies have been carried out in accordance with relevant financial laws and regulations.

1.3. Performance Audits – to ascertain whether Federal Statutory Bodies activities

have been carried out efficiently, economically and achieved its desired objectives and goals.

2. Audit findings on Financial Management and performance audits on the implementation of activities of the Federal Statutory Bodies are reported separately from the audit on the Financial Statement audits of Federal Statutory Bodies. The report on the certification of Financial Statements and Financial Performance can only be prepared after all Federal Statutory Bodies’ financial statements have been submitted for audit and after the Audit Certificates have been issued. My report on the financial management and activities of Federal Statutory Bodies and Management of Subsidiary Companies for the year 2010 have been prepared in 5 parts as follows:

Part I - Financial Management of Federal Statutory Bodies Part II - Implementation of Activities By The Federal Statutory Bodies Part III - Management of Subsidiary Companies Part IV - Status of Follow Up Actions Taken By The Federal Statutory

Bodies On Recommendations In The Auditor General’s

Report For The Years 2008 till 2009 Part V - General Matters

PREFACE

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3. Beginning 2007, the National Audit Department has implemented the star rating system based on Accountability Index. Federal Statutory Bodies which were selected will be evaluated objectively on its level of financial management based on measurable criteria. The Federal Statutory Bodies rated as excellent can become a role model to others. This will motivate Federal Statutory Bodies to diligently improve and enhance their financial management. In 2010, this audit covers 39 Federal Statutory Bodies selected on a rotational basis and based on the 8 main elements in financial management. However only 31 Federal Statutory Bodies were rated while 8 others were not rated because they were small, just established and several of the financial management main elements were not applicable to them. 4. Generally, the financial management performance of Federal Statutory Bodies for the year 2010 has improved compare to 2009. In 2010, 10 Federal Statutory Bodies attained excellent performance, compare to 2 Federal Statutory Bodies in 2009. From the audit findings, Federal Statutory Bodies have satisfactory management structures, clear objectives, efficient management of human resources, proper planning in filling up posts including succession planning and career development through continuous training programmes for their officers. Systems and work procedures are in order and complete. Federal Statutory Bodies have also formed important committees such as the Audit Committee, Financial Management and Accounts Committee, Integrity Committee and Internal Audit Units. However, audit findings revealed that several financial regulations were not fully complied with. 5. Section 6(d) of the Audit Act 1957 requires the Auditor General to conduct performance audit to ascertain whether the activities of the Federal Statutory Bodies have been managed efficiently, economically and in accordance with the objectives of these activities. The audits were conducted on various activities among others procurement, project construction, loan management, investment, asset management, as well as socio economic enhancement programmes. This Report contains matters observed from the audits on 23 activities. Generally, the Federal Statutory Bodies have planned well for their activities. However, there were several weaknesses in the implementation of activities due to lack of close supervision, ineffective monitoring, insufficient funds, shortage of manpower and expertise.

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6. As in previous years, auditing has also been carried out on companies which the Federal Statutory Bodies owned more than 50% equity. The audit has been conducted to ascertain whether the management, financial management and activities of subsidiary companies of Federal Statutory Bodies had carried out its activities effectively, prudently and in accordance with established objectives. Analysis was also made on the financial performance of subsidiary companies. This Report comprises the financial analysis of 99 subsidiary companies of Federal Statutory Bodies based on their Financial Statements for the years 2006 to 2009. Matters observed from the audit of management, financial performance analysis, financial management and activities of 16 subsidiary companies were also reported.

7. Overall, profit before tax for 99 subsidiary companies and 55 sub subsidiary companies for the year 2009 amounted to RM439.56 million. Audit analysis revealed that 32 subsidiary companies earned pre tax profit for 4 consecutive years amounting to RM656.83 million while 6 subsidiary companies incurred losses totalling RM79.65 million for the same period. A total of 34 subsidiary companies and sub subsidiary companies paid dividends amounting to RM190.18 million for the years 2006 to 2009 while 5 subsidiary companies paid dividends for 4 consecutive years. Subsidiary companies of Federal Statutory Bodies under the financial and hotel sector paid the highest taxes. Besides that, 36 out of 99 subsidiary companies paid taxes amounting to RM58.05 million to the Government and State Religious Council. In addition, 23 subsidiary companies and sub subsidiary companies were inactive while 4 of them did not commerce operation since established. Overall, the management of subsidiary companies was good. Nevertheless, there are still weaknesses in the implementation of activities that need to be addressed so as to ensure activities are implemented efficiently, properly and achieved its stipulated objectives. 8. The National Audit Department has submitted a total of 82 recommendations to assist Federal Statutory Bodies and Subsidiary Companies to rectify its weaknesses raised in the Auditor General’s Report for the year 2009. Follow - up audits conducted up to 1 April 2011 revealed that the respective Federal Statutory Bodies and Subsidiary Companies have taken action on 70 (85.4%) out of the total recommendations while 12 (14.6%) of the recommendations, actions are either being undertaken or has not been carried out yet. 9. All matters to be reported have been brought to the attention of the respective Chief Executives of the Federal Statutory Bodies and Subsidiary Companies concerned for their confirmation. The feedbacks received have been taken into consideration in finalising this Report.

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10. I wish to express my thanks to all the officers in the various Federal Statutory Bodies and Subsidiary Companies who have given their cooperation during the audit. I also wish to record 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 B. BUANG) Auditor General Malaysia Putrajaya 16 June 2011

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SYNOPSIS

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PART I - FINANCIAL MANAGEMENT OF FEDERAL STATUTORY BODIES The National Audit Department carried out financial management audit at 39 Federal Statutory Bodies in the year 2010. The objective of this audit is to ascertain whether financial management at these Federal Statutory Bodies were being managed according to established laws and financial regulations. The result of the audit showed that generally the financial management at these Federal Statutory Bodies were good. The rating system based on Accountability Index for financial management started in the year 2007. The Federal Statutory Bodies rated as excellent can become a role model to others. The audit covers aspects of management control, budgetary control, revenue control, expenditure control, management of trust funds and deposits, asset and stores management, management of investments, management of loans and submission of Financial Statements. From the assessments carried out in 2010, the financial management performance of 10 Federal Statutory Bodies were rated as excellent, 19 as good and the 2 others as satisfactory. Eight others were not rated because they were small, just established and several of the financial management main elements were not applicable to them. As compared to 2009, 2 Federal Statutory Bodies were rated as excellent, 27 are good and 4 others as satisfactory. This shows that the financial management performance for the year 2010 is better as compared to 2009. PART II - IMPLEMENTATION OF ACTIVITIES BY FEDERAL STATUTORY BODIES MALAYSIAN HIGHWAY AUTHORITY - Project Management On Senai Desaru Highway The Malaysian Highway Authority (MHA) was established under the Malaysian Highway Authority Act 1980 (Act 231) and regulated by the Ministry of Works. MHA serves as a regulatory agency following the implementation of privatization policies by the Malaysian Government since 1983 that resulted in most of the functions of MHA being taken over by concession companies. Government has approved the implementation of the Senai Desaru Expressway Project in Johor through privatization by appointing the concession company to build, collect tolls, operate and maintain the highway during the concession period. The purpose of this project is to link Johor Bahru to Desaru tourist areas, reduce congestion at the Pasir Gudang Highway, linking Johor Port and Senai International Airport, develop the corridor along the highway and accelerate the development of the East Coast of Johor. The construction agreement of the Senai Desaru Expressway

SYNOPSIS

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Project worth RM1.37 billion to build the highway that stretches 77 kilometres was signed between the Federal Government and the concession company on 31st July 2004. An Audit carried out revealed the following matters:

Cost of land acquisition has increased from RM365 million to RM740.60 million

due to payment for compensation that exceed the market price, high injurious affection and severance payments and interest payment of 8% due to payments not made within the stipulated period.

Preliminary estimates and feasibility studies were prepared by the concession

company without a detailed follow-up by the Central Agency and MHA that had resulted in the initial planning cost to be much lower compared to actual costs.

Traffic forecast made by the concession company was approved by the Road

Planning Division, Ministry of Public Works in December 2001. However, the statistics prepared by the MHA shows that the actual number of vehicles using the highway is less than the traffic forecasted with the achievement of only 1.9% for the period of three months in 2009 and 8.3% in year 2010.

The project completed by the concession company was not in accordance with

specifications causing damages to the road surface and endangering road users. Although the project for package 3 was 100% completed in April 2011, the road surface is undulating and river protection has not been built on the Sungai Selat Mendana, Sungai Layang, Sungai Papan, Sungai Semenchu and Sungai Chemaran. Revetment protection has yet to be constructed along the Pulau Juling Highway causing soil erosion along the area and pollution to the mangrove swamps.

The concession company has failed to complete the construction work in accordance within the stipulated period. The concession agreement did not specify any liquidated and ascertained damages to be imposed in the event the project completion is delayed. Consequently, MHA is unable to impose any liquidated and ascertained damages if the project has failed to be completed within the stipulated contract period.

Highway maintenance is unsatisfactory and the concession company has yet to take action to resolve the non-compliance reports issued by the MHA.

Delays in completing the Senai Desaru Expressway Project have resulted in delays for the Government receiving the income of 20% from the profits of toll collection revenue.

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Audit recommended that the Central Audit Agency and the MHA to conduct studies on land suitability and accuracy of the alignment of the highway. The process of land acquisition should be based on the highway alignment and planned road design. In addition, the MHA should review the feasibility studies made by the concession company to ensure that the facts presented are accurate and taken into account the land acquisition costs that are realistic to avoid unnecessary significant cost increases. MHA should ensure that the concession agreement is reviewed thoroughly and take into account all necessary clauses in relation to the construction and maintenance of the project to protect the interests of the Government and public safety. In addition, MHA should impose clauses on liquidated and ascertained damages against the concession company in the event of delays in completing highway projects and non-compliance with terms of the agreement. All agencies involved should evaluate the traffic study prepared by the concession company in detail before approval is given. MHA and the consultants should monitor the project closely to ensure that the construction is carried out in accordance to specifications, desired quality and within the stipulated period. NATIONAL SPORTS COUNCIL - Management Of Sports Grant National Sports Council (NSC) was established under the National Sports Council Act 1971 and amended by 1979 Act. The function of NSC is to assist and streamline the sports associations and organizations at the national, state and district level. NSC has been implementing various well-planned, sustainable and comprehensive development programmes for athletes with the cooperation of the National Sports Association (NSA). In line with its function, NSC provides sport grants to every NSA to be used for sports development. The Ministry of Youth and Sports has provided allocations for the athlete development programme under the Sport Trust Fund amounting to RM236.50 million to NSC from 2008 to 2010. NSC has spent RM208.30 million or 88.1% of the total allocation received. An audit carried out revealed the following matters:

Application procedures for sport grants were briefly outlined in the payment procedures and it was based on the practices adopted since the first grant was released and there was no agreement signed. The Sports Grants Guidelines was incomplete to ensure that processing of grant can be implemented in an efficient and proper manner.

The balance of advances paid to NSA after completion of every tournament was based on NSA’s claims. The existing allocations of NSC’s sports grant were not sufficient to meet the total expenditure requested. Payment to 6 NSA amounting to RM1.63 million was delayed between 109 to 350 days for the year 2007 to 2009.

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Appointment of chief secretariat and other members of the secretariat for the World Endurance Championship (WEC) 2008 programme were not stipulated in writing and the authorised limit for spending was also not specified.

Acquisition of 23 horses amounting to RM5.66 million was made through direct negotiations without prior approval from the Ministry of Finance. Acquisition of horses was made without any offer letter or agreement which requires to stipulate the responsibility of the supplier. Payment was also made under the name of an individual.

Five out of 23 horses purchased were eligible and have competed in the WEC 2008. The remaining 18 horses purchased at a cost of RM3.94 million do not qualified because they failed to meet the requirements set by the Federation Equestre Internationale.

All of the 23 horses costing RM5.66 million did not continue to compete in the WEC 2010 and Asian Games 2010 as recommended by the Youth and Sports Ministry because the horses have been donated to the Government and Non-Government Agencies.

NSC has allocated RM470,000 to the Persatuan Sukan Berkuda Lasak Malaysia (PSBLM) for organizing the circuit 5. However, the circuit 5 has been cancelled and PSBLM has returned RM170,000 while the remaining RM300,000 was spent on technical management fees. PSBLM handed RM300,000 to the NSC’s officer

in cash but the officer did not have a written authority to receive and spend the money.

NSC provides RM3.65 million under the Athlete Development Programme. However, this provision was not spend for its original purpose but RM2.25 million or 61.6% of the total allocation was spent for advertising to promote core sport through television, radio, newspapers and magazines.

NSC did not monitor the programme performance and expenditure of the sports grant to ensure the grant was spent in accordance with the approved application. Some of the NSA did not submit their performance report and the expenditure statements to NSC.

Audit recommended that the allocation of sports grant should be planned based on the sports programme that will be implemented by NSC and NSA to ensure the allocation are adequate. Guidelines and procedures on sports grant should be prepared to assist the officers or others in performing their tasks efficiently and systematically. NSA should also submit their claim as soon as each tournament has been completed. NSC should ensure that procurement through direct negotiations must be approved by the Ministry of

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Finance. In addition, NSC should ensure that every NSA must submit their audited financial statements in order to monitor the programme implemented in accordance with the allocations given. INDIGENOUS PEOPLE’S TRUST COUNCIL - Management Of Courses For The Poor And Hard Core Poor Under The Second

Economic Stimulus Package Indigenous People’s Trust Council (also known as MARA) has been given allocation

amounting to RM54 million under the Second Economic Stimulus Package (PRE 2) which was channelled through GIATMARA Pte. Limited (GIATMARA) to conduct courses for the poor and hard core groups. The aim of this course is to provide opportunities for the poor and hard core groups to generate income and to get job through skills training. As at December 2010, GIATMARA has implemented 1,090 courses and programmes under PRE 2 costing RM53.99 million. An audit carried out revealed the following matters:

Procurement worth between RM5,040 to RM402,775 amounting RM38.97 million

was made through purchase order or direct negotiations without quotation or tender proses and without approval from the Ministry of Finance.

Management fees of 10% has been imposed on 1,086 programmes

implemented amounting to RM4.93 million and was credited from the total expenditure as an income to GIATMARA without the Ministry of Finance’s

approval. The Standard Operating Procedures which was used for implementing the

programme was not presented to the Board of Directors for approval. A total of 660 GIATMARA Dekat Rakyat’s programmes amounting to RM4.95

million have been used for different scope apart from the approved programme by the Ministry of Finance which was meant for Courses to the Hard Core Groups.

From 61 participants or 47.3% interviewed, showed that they failed to generate

income and therefore the programme objectives were not fully achieved.

About 11 courses carried out with the total expenditure of RM1.22 million were not suitable with the participants because of their residence location, they have no access to electricity and need large capital to start business.

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The income of 18 out of 140 participants or 12.9% had exceeded the poverty level as the condition of their houses, vehicles owned and furniture and having swiftlets industry indicate that participants were not poor or hard core.

About 94 participants or 72.9% of 140 selected participants were not listed in the

register of e-Kasih, while 12 other participants were excluded from the list because their income level was above the poverty line prescribed.

The market price of 10 types of equipment has a lower market price than the

price supplied between 71.9% to 400%.

Some of the equipments supplied were not suitable because there was no electricity supply to the residence of participants, low capability of the equipments and difficult to operate.

There were differences in price offered to the Technology Provider even though

the type of courses, number of participants and period of courses were the same.

The first follow-up on the 45 out of 140 participants to evaluate the efficiency of

the courses was delayed between 3 to 9 months.

Audit recommended that GIATMARA’s Standard Operating Procedures should be

approved by the Board of Directors before adopting it. Approval from the Ministry of Finance must also be obtained for exemption from quotation and tendering, charging of management fees and conducting a programme different from the approved scope. GIATMARA should assess the suitability of programmes and equipments supplied to the participants so that they can generate income from the skills training and equipments provided and ensure the programme objectives are achieved. In addition, market research on the price of equipments shall be conducted in order to get a reasonable price. Payments to the Technology Provider should be controlled so that there is no significant difference in price and save costs. GIATMARA should carry out monitoring in accordance with the stipulated period to obtain the status of the participants and take appropriate follow-up actions so that the objectives of the programme could be achieved. UNIVERSITY MALAYA MEDICAL CENTRE - Project Management On Total Hospital Information System University Malaya Medical Centre (UMMC) was established under the Universities and University Colleges Act 1971 and regulated by the Ministry of Higher Education. The objective of UMMC is to construct, operate and develop a world-class medical centre to

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cooperate with the Faculty of Medicine, University of Malaya in providing medical education, training, research, practice and consultancy. Based on the UMMC’s 2006 ICT Strategic Plan, UMMC will be transformed into a

hospital that uses ICT to its maximum level by implementing fully the Total Hospital Information System (THIS) through tele-health technology and being paperless within the next five years. As a move towards achieving its objectives, UMMC has implemented a total of 17 ICT projects since 2006 with an estimated total cost of RM63.84 million. A sum of RM50.91 million of the total cost is the cost of 4 THIS projects which was funded under the RMK9. The THIS project which is also known as PPUMiCARE was first developed in 2006. The project comprises of 26 clinical and non-clinical modules, clinical support including integration and technical requirements. The PPUMiCARE project was approved by MAMPU in 2003. An audit carried out revealed the following matters:

This project which began on 8th April 2006 with an expected date of completion on 7th April 2009 had encountered delays between one to 36 months with two extensions. The first extension was granted until 30th June 2009 and the second extension was until 7th October 2009. The extension period with a penalty sum of RM1.55 million to resolve all outstanding work had been imposed on the main contractor starting on 8th October 2009 till 31st December 2009. Among the factors causing delays in project implementation is the changing of partners, products for the clinical module, clinical support and delay in implementation of integration.

UMMC uses the Virtual Backup method as a backup to the system that has been

developed. This Virtual Backup method, also known as Virtual Tech Library, is unpopular because the operating system and database is stored virtually in the same server. In the event of damage to the server, the original system could not be achieved and virtual backup system will also be affected.

Disaster Recovery Plan prepared on 23rd July 2010 was not complete. The plan

only provided the information of the officer involved, existing inventory and restore. A Disaster Recovery Plan should describe in detail how to start the process and update information that was stored in backup tapes before the disaster.

Maintaining patient information which is the fundamental basis of all information

systems developed in iSOFT Patient Manager was not fully utilized. Patient record module is a basic network relation to integration between modules in the development of THIS project.

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Some doctors gave prescriptions through the system and some wrote it manually. Manual prescriptions brought to the counter by patients caused the Pharmacy Division inability to print the prescription through the system. In order to overcome this problem, the Pharmacy Division had to provide pharmacists dedicated to input the data through the system.

The Drug Charges Schedule set by UMMC could not be captured into the

Revenue Collection System. Setting of drug prices are still done manually. Revenue collection in the Pharmacy Division was done manually and no official

receipt was issued, otherwise, information was stored based only on the audit roll issued from the cash register. At the end of the day, the Pharmacy Division will submit a Statement of Cash Surrender which recorded the collection of each counter for the day to the Finance Division for the input to UMMC’s financial

system. However, this form was recorded based on the fraction of the total cash proceeds received and the audit roll from the machine. No information on the charges was attached to this statement.

Audit recommended that UMMC implements a Post Implementation Review of the completed modules to identify the cause of failure of part of the modules in PPUMiCARE system so as not to be repeated in future systems development. Computerisation plans to be implemented should take into account the weaknesses raised. All systems developed should be used by every user to ensure that the delivery services to patients are effective. In addition, UMMC needs to benchmark successful systems in other hospitals in order to address existing problems. Disaster Recovery Plan and Disaster Recovery Centre should comply accordingly to the Malaysian Public Sector Information & Communications Technology Management (MyMIS) to ensure continuity of UMMC’s operations in the event of a disaster. MALAYSIA TOURISM PROMOTION BOARD - Management Of Procurement On Advertising And Promotion Support

Activities Malaysia Tourism Promotion Board (MTPB) was established under the Malaysia Tourism Promotion Board Act (Act 481) in 1992 and it is under the responsibility of Ministry of Tourism Malaysia in 2004. The objective of MTPB is to increase the number of foreign tourists into Malaysia as well as to encourage domestic tourism growth and also to increase the national income. The MTPB mission is to promote Malaysia as an excellent tourism destination in the region.

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In consistent with the above mission, MTPB has established Advertising Division and Promotional Support Division to encourage the advertising and promotion activities such as publishing pamphlets, audio visual and souvenirs. This is to promote Malaysia to domestic and foreign tourists. An Audit carried out revealed the following matters.

The advertising projects have to be cancelled even though the Advertising Division and Promotional Support Division are having surplus balances in their financial allocation. This is due to the management’s decision to utilize surplus

balances for the year 2009 to meet the deficits of other divisions. For the year 2009 and 2010, MTPB has purchased advertising spaces via direct

booking amounted to RM194.31 million or 72.1% which is higher compared to the purchases made through tender process of RM75.38 million.

The purchase made for 1,000 units of Visit Malaysia 2007 pamphlet rack

amounted to RM1.95 million was made through direct booking without any approval from the Ministry of Finance. There was no agreement made among the Ministry of Tourism, MTPB and the supplier to specify the terms and conditions of the goods and the delivery period.

The process of procurement, receiving and storing the souvenirs was managed

by the Ministry of Tourism but payments made by MTPB. The installation of billboard in Indonesia was made without talking into

consideration the comments from the Director of MTPB Indonesia, regarding the proposed location of installation that was not suitable.

During the audit visit to the advertising location in Johor Bahru, Penang, Kuala

Lumpur and Klang Valley the billboard location was found to be not strategic. Furthermore, there were cases of stolen and damages on the billboard lamps.

The procurement on advertising and promotion activities carried out under the

instruction of the Ministry of Tourism was not tabled to the Board of Directors. Audit recommended that MTPB follows the procurement regulations so that the procurements can be examined and evaluated by the Technical Committee and Financial Committee to ensure good return and value for money to MTPB. Furthermore, MTPB should carry out market surveys in order to get the best offered price. The Ministry of Tourism and MTPB should conduct an investigation on procurements that were carried out not in accordance to financial procedures. If there is any fraud and abuse of power, it should be reported to the related parties and disciplinary action should be taken. In addition, MTPB should ensure that agreements with suppliers are signed and goods received are confirmed before any payment made.

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PILGRIMAGE FUND BOARD - Management Of Procurement Pilgrimage Fund Board (also known as LTH) was established under the Hajj Pilgrim’s

Fund Act 1995 (Act 535) effective on 1st June 1995. The main objective of LTH is to enable Muslims to save for pilgrimage and provide services and facilities during hajj. In line with its objective, LTH has made procurement on works, supplies and services for development, operation and provide services to depositors and pilgrims. The management of LTH procurement is centralised under the Procurement Unit, Administration and Procurement Division LTH. The unit is responsible in managing procurement activities including maintenance, tenancy and consulting services. In the year 2009, LTH has made procurement worth RM254.25 million through tender, quotation and direct purchase whereas in the year 2010 the amount involved was RM164.52 million. An audit carried out revealed the following matters:

LTH has renovated Tabung Haji Complex in Bayan Lepas, Penang by constructing an additional roof structure at the back of the hall, changing the location of maintenance elevator as well as constructing walls and partitions in blocks A and B without the approval of the Municipal Council of Penang.

A total of 97 Variations Order amounting to RM2.21 million or 20.5% of the

contract value has been issued for the renovation and upgrading of Tabung Haji complex, in Bayan Lepas. However, the Variation Order no. 76 to 97 has not been approved as the main contractor did not agree and refused to sign the Variation Order.

Payments to contractor were delayed between 48 to 539 days from the date of

submission of their claim. As of December 2010, Certificate of Making Good Defects and Final Completion

Certificate of Tabung Haji Complex in Bayan Lepas has not yet been issued even though the defect liability period has expired and the complex has been used since 2008.

A total of 13 procurement in 2009 amounting to RM7.35 million and 72

procurement in 2010 amounting to RM27.02 million has been awarded to LTH subsidiaries through direct negotiations without the approval from the Ministry of Finance.

Audit recommended that LTH should plan its procurement process and obtained approval from the relevant authorities to ensure that the project can be implemented efficiently and properly. The procurement should be made through an open tender to ensure that only competent companies that can provide competitive prices and offer the

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best value for money will be selected. If the procurement is made through direct negotiations, approval from the Ministry of Finance must be obtained. The management also needs to present Project Performance Report to the Board of Directors periodically for their attention and to resolve problems arising. THE CENTRAL TERENGGANU DEVELOPMENT AUHORITY - Management Of Housing Aid Programme Under The First Economic Stimulus

Package The Central Terengganu Development Authority (also known as KETENGAH) was established in the year 1973 under The Central Terengganu Development Authority Act (Act 104) and was regulated by the Ministry Of Rural and Regional Development (Ministry). One of the main objectives of KETENGAH was to focus precisely on the entrepreneurial developments with the aim of increasing the income of each head of the household to at least RM1,000. KETENGAH has implemented Housing Assistance Programme (PBR) under The First Economic Stimulus Package covering the district of Dungun, Kemaman and Hulu Terengganu. The objective of the Housing Assistance Programme was to provide financial and management aids to enable the well-being of the targeted group to occupy a safer and more comfortable homes comparing to the previously dilapidated condition. The aim of this programme was to improve the living quality of the poor and the hard-core poor. The targeted group comprises of the poor and the hard core poor who were registered with e-Kasih or People’s Welfare

Development Scheme System (SSPKR) and also included the elderly, the disable and single mothers with many dependents. The types of the housing assistance provided were new constructed houses with 3 rooms costing RM33,000 each and repairs to the existing houses costing RM11,000 each. An audit carried out revealed the following matters:

The newly constructed PBR houses in Mukim Tebak, Kemaman dan Bukit Besi,

Dungun, Terengganu were found not suitable sites because the contractors faced difficulty in connecting the supply of electricity and water to these houses.

In the year 2009, a total of 327 from the 341 recipients or 95.9% of the PBR assistance were not registered in SSPKR or e-Kasih but yet were given the housing aid. As of December 2010, these recipients were not registered in the e-Kasih which consisted of 128 recipients for new houses and 199 recipients for repairs to their existing houses.

From the listing in the e-Kasih, it was found that 22 out of the 251 participants were eligible for the assistance, but only 1 participant received new house assistance. The balance of the 21 participants consisting of 6 participants under the hardcore poor category, and 15 others under the poor category were not given any PBR assistance. In addition, it was found that another 3 participants

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from the list of e-Kasih who had exceeded the poverty line income were given PBR assistance in the form of repairs to their existing houses.

Visits made to the houses of the PBR assistance recipients comprising of 73 recipients for new houses and 37 recipients for repairs to their existing houses in Dungun, Kemaman and Hulu Terengganu District found that the recipients were not poor because some of them owned cars and had renovated their PBR new houses.

The PBR house construction’s plans and specifications for 83 unit new houses in

Phase II and 1 unit new house in Phase III which were constructed in June 2009 was not in accordance with the PBR Guideline No. 1 of 2009 (GP 1/2009) because PBR Guideline No. 1 of 2008 (GP 1 / 2008) was still being used. The differences observed between the 2 guidelines were in the construction of the pillars and the walls of the rooms. According to GP 1/2009, the construction of the pillars were concrete in-situ and the walls of the rooms were cement bricks whilst GP 1/2008 stated the construction of the pillars in precast and the walls of the rooms as 2 feet cement brick cum 8 feet plywood.

The construction works for 73 unit new houses were not in accordance with the contract plans and specifications. Among them were the fixed ram window with iron shield was replaced by bricks vent, 2 position adjustable vane glass windows was modified to the left and the roof was replaced with asbestos roofing from the original asbestos free roofing. Besides, the quality of the construction works was found to be poor such as cracks occurred on the walls, the house sinking, leaks in the roof and paint work pealing.

All the 89 application forms for Phase III PBR assistance were not verified by the enumerators, not checked and approved by the supervisors from the KETENGAH’s Poverty Eradication Division. Thus, Audit was unable to ascertain

whether the distribution of the PBR assistance was given to the targeted group. In addition, it was also found that a total of 17 forms relating to authority given to use the land were not signed by the authorised witness namely the District Officer or the Land District Administrator.

Audit recommended that KETENGAH should take appropriate action to ensure that the site chosen for the construction of PBR houses were suitable so that the houses could be occupied according to schedule and also provided with the basic infrastructure needs such as water and electricity. KETENGAH should also give priority to participants who were eligible and registered with e-Kasih in the selection of PBR participants. KETENGAH should ensure that the list of newly proposed participants was registered with e-Kasih and those who had received the assistance be updated. Participants selected by KETENGAH had to comply with the criteria set. The Chairman of the Village

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Development and Security Committee has to be transparent in recommending the PBR participants and ensure that the participants recommended were truly eligible for the assistance. In addition, KETENGAH had to adopt the latest guidelines issued by Ministry in its implementation of PBR and also to ensure that the construction work carried out by the contractors were of quality and comply with the contract plans and specifications. RUBBER INDUSTRY SMALLHOLDERS DEVELOPMENT AUTHORITY - Management Of Housing Aid Programme Under The First Economic Stimulus

Package Rubber Industry Smallholders Development Authority (RISDA) was established on 1st January 1973 under the Rubber Industry Smallholders Development Act (Act 85) to develop smallholders and rural community in line with the National Development Policy. Based on that function, Government through the Ministry of Rural and Regional Development has allocated a sum of RM500 million under the First Economic Stimulus Package and a sum of RM116.66 million has been allocated to RISDA to implement the Housing Aid Programme. The goal of this programme is to enable the target groups to live in the safer and comfortable house compared to the previous residence as well as to improve the quality of life. This programme targeted rural and urban poor who have income less than a specified Income Poverty Line in Peninsular Malaysia. Monthly income for the rural poor is RM700, urban poor is RM740 while rural hard-core poor is RM440 and urban hard-core poor is RM420. As of 31st December 2010, RISDA has built 2,609 units of new houses and renovated 2,780 units of houses at a cost of RM116.66 million under this programme. An Audit conducted revealed the following matters:

Aids were given to the ineligible targeted groups. An Audit visit to 75 new built houses and 62 renovated houses in Selangor and Terengganu in August and October 2010 revealed that the recipients are able to own cars and subscribe to Astro.

Recipients of new built housing aids are required to demolish the old houses after the new house was completed. During Audit visit carried out in Selangor and Terengganu it was found that the old houses have not been demolished due to recipient's request and contractors do not want to incur the cost of demolition of old houses.

The houses given under housing aid were not occupied by aid recipients. Eight houses out of 75 new built houses are unoccupied involving cost of RM264,000 based on the electricity meter reading and the date the houses were completed.

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Based on the date handing over Letter of Works Completion, it was found that 19 houses were delayed in receiving electricity and water supply. This delay causes the recipients late in occupying the houses that have already been built.

The completed recipients houses were built not according to specifications set out by the Guidelines To Implement The Housing Aid Programme among them were the table top not according to the measurement, cracked walls, leaking roof and door sizes are not in accordance with the actual measurements.

Letters of Acceptance were not returned by the contractor within one week from the date of the offer letter issued by RISDA. Audit review on 242 Letters of Acceptance, it was found that 16 contractors were late in returning the Letters of Acceptance to RISDA.

Construction of all newly built and renovated houses need to be completed within two months from the date of the Letter of Acceptance. Based on the Letter Of Handing Over Completion Work, it was found that 104 contractors late in completing newly built and renovated houses.

A total of 237 contractors did not applied written approval from RISDA to extend the period of construction. The fines of RM227,250 were not imposed on contractors who fail to apply for extension of time for construction.

Audit review on 518 Certification of Work Completion revealed that 91 new built houses and 80 renovated houses receive Certification of Work Completion late from RISDA. The delay in confirmation resulting contractors late in receiving payments from RISDA.

Audit review found that a total of 293 local orders were issue late to 133 contractors and a total of 11 local orders were issued in advanced before Letter of Undertaking were returned by the contractors.

Audit recommended that RISDA should select the eligible participants and comply with the criteria to achieve the objectives of Housing Aid Programme. In addition, RISDA should also comply with the financial regulations particularly in signing of Letter of Acceptance and the issuance of Local Order to the contractor. Confirmation of Work Completed by RISDA should be made according to stipulated period so as to avoid late payments made to contractors. RISDA should also monitor the work implemented by the contractors to ensure that they comply with the specifications, quality and within the stipulated period.

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KEMUBU AGRICULTURAL DEVELOPMENT AUTHORITY - Management Of Agriculture Entrepreneur Development Programme Kemubu Agriculture Development Authority (also known as KADA) was established on 30th March 1972 under the Kemubu Agriculture Development Authority Act, 1972 and regulated by the Ministry of Agriculture and Agro-Based Industry (Ministry). The main objective of KADA is to be an agency of excellence towards increasing the socio-economic standards of farmers and food production in the country. The Agro-Based Industry Entrepreneur Development Programme (IAT) was introduced in 2003 by the Ministry with the objective to increase the farmers’ income through the growth of value

added activities to the agricultural product. The programme has been continuously carried out under the Ninth Malaysian Plan with the objective to create 10,000 IAT entrepreneurs earning net income of RM2,000 per month by 2010. Agro-Based Industries set for the entrepreneurs to ventures into are based on crops, livestock, fisheries and agro-crafts. In line with the objectives of the Ministry, KADA has come out with the IAT programme in 2006 by focusing on 5 main activities namely construction of product stall; product collecting and packaging centre as well as procurement of equipments; food processing and craft workshop as well as procurement of equipments; entrepreneur training and promotion of entrepreneur products. The Government has allocated a total of RM6.60 million for the IAT programme from 2006 to 2010 and a total of RM6.10 million or 92.4% was spent up to December 2010. An audit carried out revealed the following matters:

KADA has successfully created a total of 430 agro-industry entrepreneurs whereby 65 entrepreneurs earned an average gross income of RM2,000 per month and the number has exceeded the target of 200 registered entrepreneurs. A total of 50 entrepreneurs are targeted to reach gross income of RM2,000 per month or RM24,000 per year. However, the targeted income set by KADA was not in line with the Ministry that is to achieve net income of RM2,000 per month.

The Product Collecting and Packaging Centre namely Catfish Sausage Factory

which was completed on 22nd January 2010 with a total cost of RM392,000 has not commenced operation. The equipments purchased in 2008 and 2009 have yet to be used due to no potential entrepreneur to carry out the processing, packaging and marketing activities of catfish products. The warranty period for 5 equipments worth RM488,000 has expired while the warranty period for 4 equipments worth RM237,000 cannot be ascertained.

The member of Aid Approval Committee that was established in 2010 has yet to be officially appointed to approve the aid provided to the entrepreneur. The committee met in August 2010 and has approved aid to be provided to 66 entrepreneurs. However, the total cost of aid for each entrepreneur was not decided in the meeting.

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KADA did not specify the procedures during signing the Letter of Agreement with the entrepreneurs who received the aid resulting in their failure to carry out agro-based business as stated in the application.

Audit was unable to verify the entrepreneurs who received the aid and the types

of aid as no records were maintained. In addition, KADA does not update the register of entrepreneurs.

Monitoring by KADA was poorly implemented since no monitoring report was prepared and the site visit was not extensively carried out involving all entrepreneurs.

Audit recommended that KADA should plan all its activities comprehensively and identify potential entrepreneurs in order to achieve targeted net income of RM2,000 per month set by the Ministry. KADA should also update the registration of entrepreneurs and ensure all entrepreneurs who received the aid were registered with KADA. Letter of Agreement should be prepared for all aid provided and signed by the entrepreneurs to ensure that the aid will be used in line with the programme objectives. The promotional and marketing activities should be intensified to include all registered entrepreneurs. KADA should ensure that monitoring carried out included all activities under the Agro-Based Industry Entrepreneur Development Programme and carry out a periodic visit to all entrepreneurs’ premises. UNIVERSITY MALAYSIA PAHANG - Management Of Permanent Campus Construction Project Phase 1A University Malaysia Pahang (also known as UMP) was established on 1st February 2002 under the Universities and University Colleges Act 1971 and commenced operations on 1st May 2002. UMP has started operations by renting and renovating the Malaysia Electric Corporation (MEC) building as a temporary campus in Gambang, Kuantan, Pahang. UMP's permanent campus construction project was then planned in an area of 642 acres in Pekan, Pahang which can accommodate 10,000 students. The development project of UMP’s permanent campus Phase 1A was approved by the

Ministry of Finance during the Eighth Malaysia Plan from the year 2001 until 2005 encompassing Faculty of Mechanical Engineering (FKM), Faculty of Electrical Engineering and Electronics (FKEE) and dormitory building that can accommodate 2,000 students. However, the student’s residential building has been removed from the

scope of work due to changes in government policies that require dormitory building should be implemented by Built, Lease, Maintain and Transfer package. In 2002, the Ministry of Finance has approved the implementation of permanent campus project Phase 1A through direct negotiations under the design and built method. The project commenced with earthworks package valued at RM191 million and the construction of two faculties as well as related infrastructure valued at RM161.16 million. Project Phase

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1A was completed in June 2009 and currently under defect liability period by the contractor for two years ended in September 2011. An audit carried out revealed the following matters:

Price negotiation for the construction of permanent UMP campus Phase 1A has been negotiated for 9 times which took 28 months that is from December 2004 to April 2007. As a result, the project cost has been drastically reduced from RM632.33 million to RM161.16 million and several project scope were changed.

The earth work preparation was delayed by 14 months because the price negotiation was only held after 9 months from the letter of intent issued while the Ministry of Finance took another 5 months to finalise the price after the price negotiation process was held.

The elimination of students’ residential building from the scope of Phase 1A

project has resulted in delays of the project price determination. UMP had also modified some functions in the FKM and FKEE building in order to provide conducive environment to students and officers.

UMP has spent a total of RM116.48 million on rental since operating in a temporary campus in Gambang. If construction of Phase 1A was completed on schedule, UMP could save about RM26.31 million including RM11.77 million for renting residential building and another RM14.54 million for renting building for administrative, lecturing and academic purposes.

The delay in construction of students’ residential building also caused UMP to

hire 25 buses from July 2009 for the purpose of transporting students from temporary campus in Gambang to permanent campus in Pekan. Transportation cost of RM5.26 million was paid from July 2009 to December 2010.

UMP has overspent a total of RM1.87 million from Phase 1A project ceiling price of RM181.60 million compared to the total cost of RM183.47 million.

Technical engineering consulting services agreement was only signed on 22 April 2009 even though the date of commencement of Phase 1A work had began on 11 June 2007.

A total of RM477, 300 was spent on plant nursery but plants were damaged and did not grow well.

Late submission of application by UMP to the Ministry of Finance for approving 4 of the 5 variations order. However, UMP has performed the work in advance.

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The quality of construction works by contractor was not satisfactory because the finishing was not tidy and many defects.

Audit recommended that for the next phase, UMP should plan precisely the statement of needs by taking into consideration the user requirements and obtain adequate allocation for construction projects. The scope of the project and the scope of work shall be determined during planning stage to avoid any changes in project scope that can cause additional costs and delays in the project completion. UMP and consultants should monitor closely the projects to ensure construction implemented in accordance with specifications, quality and completed within the stipulated period. In addition, UMP and consultant shall identify all damages and defects and corrective action taken by the contractor during defects liability period. Soil feasibility studies should be carried out to ensure trees and grass planted grow well to avoid incurring additional costs in maintaining the landscape. LANGKAWI DEVELOPMENT AUTHORITY - Management On The Construction Of Extension Of Kota Mahsuri Additional

Building Langkawi Development Authority (LADA) was established to spearhead the socio-economic development, infrastructure and tourism development, providing opportunities to develop economic and tourism sectors; encourage community participation in socio-economic and cultural activities and to promote Langkawi as an international tourism destination. In line with this objective, Kota Mahsuri Complexes was built as a tourist attraction in Langkawi. In February 2005, LADA has approved the construction of Kota Mahsuri additional buildings, that are an auditorium that serves as a theatre for cultural performances and silat teachers' house to increase the uniqueness of Kota Mahsuri Complexes. LADA has allocated a sum of RM4.50 million under the Ninth Malaysia Plan for the construction of the buildings. An Audit carried out revealed the following matters:

The application for approval for Planning and Construction Work was submitted late to the Local Authority. LADA had been fined a total of RM19,500 by Langkawi Town Council because construction was carried out before obtaining permit.

The architect firm has taken into consideration loan that has not been approved

in the tender construction. Contractor’s CIDB Registration Certificate has expired during the tender

evaluation and has not been renewed.

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No comprehensive soil investigation made to identify the suitability of the land before the auditorium and silat teachers' house design was made. This causes high water retention in the auditoriums’ orchestra pit.

The contractor has installed the structure of auditoriums’ roof by using wood

instead of steel as specified in the agreement. The wood used was not in accordance with approved standards. Audit visits found that the auditorium roof trusses were slanting and might not be able to withstand the weight of the roof.

LADA has approved two extension of time totalling 396 days with a delay of

approval of 320 days even though the contractor has submitted an application for extension of time before the date of completion.

Certificate of Completion was issued 77 days after the expiry of the second

Extension of Time. LADA has deferred payment for the claim under 15 and 16 progress payment

amounted to RM189,100 until the issue of roof trusses and adjustment of interim progress claim is finalized.

Work Stop Order has been issued by LADA on 4th January 2010 and the project

has been listed as sick project by the Ministry of Finance (MOF) on 13 March 2010. Public Works Department has agreed to take over the project for completion after discussion with LADA and Ministry Of Finance.

Quality of construction is unsatisfactory and not in accordance to the

specifications such as roof trusses not according to the design, honeycomb at the main door and steel beams are exposed and rusty.

Monitoring carried out by LADA was ineffective and had caused delay in taking

action to determine the status of the project. This has caused Certificate of Non Completion to be issued late and the project has to be stopped and listed as a sick project.

Audit recommended that LADA should plan and ensure that planning approval obtained before the commencement of the development project. The design and specifications in the agreement should be finalised before the agreement signed and a comprehensive soil investigation should be conducted to avoid delays in project completion. LADA should ensure that the contractors appointed are experienced and with strong financial position. LADA and the consultants appointed should monitor the construction project closely to ensure the quality of the construction work are in accordance to specifications and the project complete within the stipulated period.

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MALAYSIA STADIUM BOARD - Management Of Sport Complex Amenities Malaysia Stadium Corporation (also known as PSM), formerly known as Merdeka Stadium Corporation was established under the Malaysia Stadium Corporation Act 2010 (Act 717) and regulated by the Ministry of Youth and Sports (Ministry). The function of PSM is to manage, maintain, prepare, promote and manage events at the Bukit Jalil National Sports Complex, Bukit Kiara National Sports Complex, Shah Alam Panasonic National Sports Complex and Jalan Duta National Sports Complex. In line with its functions, PSM has been approved an allocation of RM28.70 million in 2008 and a total of RM30 million each for the years 2009 and 2010 for utility expenses and maintenance of sports complexes. PSM has also been allocated RM36 million for the development expenditure under the Ninth Malaysia Plan (9MP) and RM10 million under the Economic Stimulus Package to carry out upgrading project, repairs and maintenance, the turf replacement project at the National Hockey Stadium and renovation of office and changing room. An audit carried out revealed the following matters:

Damages to the roof at the Bukit Jalil National Stadium requires immediate repair. In addition, there are also damages at the Putra Stadium, Pedestrian Walkway and the National Aquatic Centre in Bukit Jalil and the Stadium Juara in Bukit Kiara as follows: - The guarantee period to the roof at the Bukit Jalil National Stadium has

expired in 2008. However, the roof is still being used even though most of the parts were torn and the screws of the cable were loose. PSM has been allocated a total of RM30 million under the 9MP in December 2010 to replace the roof. PSM through the Ministry has handed over the project to the Public Works Department in April 2011 as PSM has no technical expertise.

- Rusted iron on the roof of the Putra Stadium in Bukit Jalil has caused the roof to leak. An amount of RM6 million has been allocated in January 2011 under the 10th Malaysian Plan to replace the roof. PSM through the Ministry handed over the project to the Public Works Department as PSM has no technical expertise.

- The guarantee period to the roof at the National Aquatics Centre has expired

in 2008. The roof is still being used even though most of the parts was torn. The roof of the walkways from the Bukit Jalil National Sports Complex to the Light Rail Transit System Station was torn due to heavy rains and storms. In addition, there was also a leakage at the roof of Stadium Juara but the stadium was still being used. Allocation for the replacing or repairing the roof

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of the National Aquatic Centre and the pedestrian walkways in Bukit Jalil and the Stadium Juara has yet to be approved.

There was a delayed in completing the turf replacement project at the Bukit Jalil

National Hockey Stadium that caused the stadium to be closed. This has resulted PSM to incur losses amounting to RM36,000 for the period from January to June 2011.

Land lease agreement which was signed on 18th July 2006 for the development

of motoring sport at the Bukit Jalil National Sports Complex is invalid. The reason was that PSM has signed an agreement with the company three years prior to the land lease agreement signed with the Federal Land Commissioner on 1st June 2009. The development work that was started in early 2010 has been postponed since August 2010 to an indefinite date.

The outstanding rental income for the sports complex as at January 2011

amounting to RM9.11 million involving 627 debtors. Lawn Tennis Association of Malaysia has not paid the office rental amounting to

RM118,800 per annum since March 2009. In addition, the association has yet to remit the estimated income of RM189,580 in respect of 26 tournaments held at the Jalan Duta Tennis Complex to PSM.

Audit recommended that PSM plans its financial requirements for maintenance and repairs to ensure that the sports complex remains in good condition and safe. Besides that, PSM should prepare its business plan, particularly the strategies to improve the management of sports complex rental income so as to reduce its reliance on the government. PSM also need to prepare scheduled maintenance plan that includes preventive and corrective maintenance in respect of the entire sports complex so that its facilities can be used in the long term. Follow-up actions should be taken to ensure that the tenants and organisers settle their outstanding rents before using the stadium for their subsequent event. FEDERAL TERRITORY ISLAMIC RELIGIOUS COUNCIL - Management Of Building Maintenance Federal Territory Islamic Religious Council (also known as MAIWP) was established in February 1974 under the Enactment of State of Selangor Administration of Islamic Law and incorporated in July 1993 by the Administration of Islamic Law (Federal Territories) Act 1993 (Act 505). The function of MAIWP is to set the policy and act as the main body for overseeing the development and expansion of Islam in the Federal Territory of Kuala Lumpur, Putrajaya and Labuan. In line with its functions, MAIWP has 296 buildings in Federal Territories until the end of 2010, consisting of 59 mosques, 66 surau, 26 primary

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religious schools, 112 terrace houses, 18 shop houses and 15 other buildings. MAIWP is responsible for maintaining the building except for the mosques, surau and primary religious schools. In 2009 and 2010, a total of RM6.57 million was spent for building maintenance which includes residential buildings, offices, training institutions, hotel and hospitals. An audit carried out on the building maintenance revealed the following matters:

Sewage and sewerage system at Taman Pelangi has been maintained by MAIWP since 1995 and not being handed over to Indah Water Konsortium Pte. Limited. (IWK). The reason is the sewerage plant does not meet the specifications set by IWK. MAIWP has to bear the full cost of maintenance without charging any cost to the residents of Taman Pelangi. Monthly maintenance schedule for the sewerage plant has not been prepared by MAIWP and maintenance was carried out based on complaints made by the residents of Taman Pelangi.

Project of upgrading Wisma Baitulmal should be completed on 23rd December

2010 but was not completed on time. Besides, the contractors did not apply for extension of time for the delays. MAIWP has imposed Liquidated and Ascertained Damages (LAD) of RM29,440 or RM460 per day due to the delays for the 64 days.

Rental agreement between MAIWP and Kolej Sains Dan Kejururawatan Pusrawi

Pte. Limited has not been prepared even though the company has occupied Wisma Baitulmal since May 2009. Rental payment of RM179,800 was not collected for the period of 20 months from that college.

There were damages to the ceilings, walls, windows and electrical wiring in the

dormitories and classroom in Kompleks Darul Kifayah due to vandalism caused by students. MAIWP has to incur additional cost to repair the damages which has been recurring.

There were effects of water moisture on the ceiling at the Multipurpose Hall and

Engineering Workshop in Institut Kemahiran Baitulmal caused by the leaking roof. The ceiling in the toilet of Sewing Class Building was also damaged due to vandalism caused by the students.

Periodic inspection by the Maintenance Unit has not been carried out but the

maintenance and repair will only be made after getting reports of damage from the occupants.

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Audit recommended that MAIWP expedites the handing over of sewage and sewerage system at Taman Pelangi to the IWK to solve the sewerage problems faced by the residents immediately. MAIWP should ensure the upgrading or renovation of buildings undertaken by the contractors must be completed according to specifications and within the prescribed period. The rental agreement with the tenant must be prepared immediately and ensured that the monthly rental payment collected to avoid loss of revenue. Scheduled maintenance programme should be implemented to ensure that all the buildings are safe, conducive and comfortable to the occupants. UNIVERSITY TECHNOLOGY MARA - Management Of Equipment University Technology MARA (also known as UiTM) was established under the ITM Act 1976 (Act 173) and is regulated by the Ministry of Higher Education. Among UiTM’s

main objectives is to be an excellent organisation to ensure an effective and efficient management of human resources, financial and equipments in order to achieve UiTM’s

vision. UiTM has a main campus in Shah Alam, 15 branch campuses, 3 satellite campuses and 21 allied colleges in Malaysia. UiTM has allocated RM355.18 million for the year 2008, RM402.83 million for the year 2009 and RM268.59 million for the year 2010 for the procurement of equipments. Until the end of 2010, UiTM has spent RM893.45 million or 87% from the total allocation. An audit carried out on this project revealed the following matters:

A total of 49 equipments worth RM1.16 million were still unused because the related courses have been transferred to other campus, no research requirement and the clinic is not in operation yet.

UiTM has procured 41 equipments valued at RM909,886 but were not used optimally. Among the equipments identified are 3 units of Local Area Network Trainee valued at RM164,007, 4 units of Spectrum Analyze valued at RM99,824 and 13 types of other equipments valued at RM605,588 which were not being used for more than a year. This has resulted in students were not able to use the equipments optimally and could affect their studies.

Facilities Management Office in Shah Alam campus and Kuala Terengganu

campus procured air conditioners through quotation instead of tender even though the totalled value exceeded RM500,000 per annum for the year 2009 and 2010. This is because there is no proper planning for the procurement of air conditioners for each year.

UiTM rented computer equipments such as desktops HP Compaq 6005 Pro

worth RM24.96 million in the year 2009 for the main campus and branches. However, there was a delay in signing the agreement and stamped duty was not

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paid. The branch campus could not ascertain whether the supplier has abided by the terms of the agreement because a copy of the agreement was not given to them by the main campus.

UiTM has also rented furniture worth RM2.55 million in the year 2009 for College

Melati in UiTM Shah Alam usage. A copy of the agreement was not provided to the management of the College to ensure that all furnitures were delivered in accordance with the specifications. There is no evidence shown whether inspection was carried out by the supplier because UiTM did not maintain records of damages/lost/stolen furniture.

Action has not been taken to dispose unused equipments worth RM3.07 million.

Besides that, the disposal process took between 2 to 6 years and this has caused UiTM to have serious storage problem.

A total of 147 cases of missing equipments worth RM1.74 million from the year

2008 to 2010 did not comply with the Treasury Circular No. 2 of 2009 where there was no police report, initial and final reports not prepared within the stipulated period. Besides that, the register for missing and written off equipments was not updated and delays in adjustments to the accounting records.

Audit recommended that UiTM should have a comprehensive planning for the academic programmes, faculties’ facilities development and equipments’ procurement according

to its current needs to ensure maximum utilisation of equipments. UiTM should plan its procurement according to needs in order to avoid wastage and procurement should be carried out according to financial regulation to get value for money. Equipment rented from suppliers should be monitored to ensure the equipments were delivered according to the agreed terms and conditions. Disposal procedures should be adhered to ensure the disposals of damage, obsolete and uneconomical to repair equipments were carried out in a timely manner. This will also avoid diminution in value and utilisation of storage space. NATIONAL POPULATION AND FAMILY DEVELOPMENT BOARD - Management Of Contraceptive Supplies And Medical Equipment National Population and Family Development Board (also known as LPPKN) was established under the Family Planning Act 1966 and amendments to the Family Planning Act (Amendment) Act 1984. It was regulated by the Ministry of Women, Family and Community. The objective of LPPKN is to enhance awareness, knowledge and practice of family values among community leaders, parents, prospective parents and youth, to strengthen and improve family well-being through the collaborative and efficient programmes so as to create a quality population. LPPKN spent a total of

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RM11.56 million from 2006 to 2010 of its allocation for the procurement of medical equipments and contraceptive supplies. An audit carried out revealed the following matters:

A total of 5 units autoclave machines amounting to RM65,000 for LPPKN clinic in Dungun, Ampang, Kuala Lumpur, Bentong and the University Malaya Medical Centre were not installed within the stipulated period. Delays in installation of autoclave machines have caused equipments not being fully utilised and warranty period expired.

A total of 6 units autoclave machines amounting to RM78,000 which were supplied in 2007 and 2008 to LPPKN clinic in Tanjung Malim, Bidor, Kampar, Taiping, Mentakab and Kuala Terengganu were used before receiving the certificates of accreditation.

A total of 31 types of medical equipments were not used at LPPKN clinic in Kampar, Sri Manjung, Kuala Terengganu and Klang because these clinics were supplied with new equipments even though the old equipments could still be used. This causes the equipment supplied in excess of requirement.

Distribution of contraceptives were not in accordance with the clinic requirements which led to expired stocks amounting to RM192,574 were disposed in 2009 and 2010 involving the states of Selangor, Terengganu, Penang, Pahang, Kedah, Johor, Malacca, Perlis, Kelantan, Sabah and Sarawak.

A total of 39 medical equipments purchased from 1981 to 2004 amounting to RM300,133 in the Division of Human Reproduction has yet to be disposed even though approval has been obtained twice that is in March and August 2010.

Medical equipment register in LPPKN clinics was incomplete because information such as the official order number, purchase price, signatory of the Head of Department and equipment location was not recorded.

Audit recommended that LPPKN plans its procurement of equipments and distribution of contraceptive supplies based on requirement for optimum usage. LPPKN should dispose its medical equipments and contraceptives immediately after obtaining approval from the Board of Asset Examiners. A complete and updated record should be maintained for easy detection of medical equipments and to facilitate monitoring.

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MALAYSIAN HEALTH PROMOTION BOARD - Management Of Grants To Non-Government Organisation Malaysian Health Promotion Board (LPKM) was established on 1st April 2007 under the Health Promotion Board Act 2006 (Act 651) and regulated by the Ministry of Health. LPKM was established with the purpose of becoming a centre of excellence in health promotion at national and international level. Pursuant to its function, LPKM has been planning and implementing programmes on health promotion activities for the benefit of the community to achieve excellence health. Among the objectives of health promotion activities are to finance activities carried out by sports recreational and cultural organization and to promote healthy way of life and environment. Until December 2010, a total of RM9.39 million grants were approved to 197 non-governmental organizations (NGOs) involving 233 activities. An audit carried out revealed the following matters:

LPKM did not prepare the annual plan that includes grant expenditure allocation, activities to be funded, targeted groups, number of grant applications, monitoring schedule and evaluation of the effectiveness on the use of grants by NGOs.

Ministry of Health has approved RM77.88 million operating grant to LPKM for the

year 2008 to 2010. A total of RM50.42 million grants have been allocated to NGOs to implement health promotion activities. By the end of 2010, only RM9.39 million or 18.6% from RM50.42 million has been given out to the NGOs.

Grant application must use the LPKM application forms and supported by

certificate of registration of organisation, its constitution, the implementation schedule of activities, details expenditure of activities and bank account statements of NGOs. A total of nine NGOs that received grants amounting to RM800, 000 failed to submit their grant application forms even though seven of the projects had received special approval from the Minister of Health to implement the health activities.

LPKM has approved a grant of RM45,000 on 26th October 2008 to the

Recreational Celebrities Club to perform health activities of Together For Health. However, this grant application was not submitted and evaluated by the Committee For Giving Small Grant.

Sam Wong Kong Devotees Association has signed an agreement with LPKM on

13th January 2009 for the Lion Dance Championship activities in 2008 with the approved grant amounting to RM341, 950. LPKM has paid 4 times amounting to RM307,755 or 90% of the approved grants. Until February 2011, the said Association has not refunded the excess grant of RM49,857 even though LPKM has sent reminders in September 2010.

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Grants given are not in accordance with the stages of payment and the rate prescribed. Payments should not be more than 3 stages and a total of 3 NGOs have received the first stage between 50% to 90% of approved grants.

Under the agreement, NGO should submit their Final Report on projects

including the Financial Report that have been certified within two months after the activities have been carried out in order for LPKM to release the final payment of 10% of grant approved. A total of 28 NGOs did not submit their Final Report of projects even though the activities had been implemented.

Audit recommended that LPKM get initial information about activities and projects of NGOs to be implemented in accordance with the direction and objectives of LPKM. LPKM needs to plan the annual activities with information from NGOs. LPKM should ensure all interested NGOs to submit their applications forms in order for LPKM to evaluate the viability of the proposed activities and projects. Besides that, LPKM should review its guidelines pertaining to health promotion grants so that it can be implemented properly and more efficiently. LPKM’s enforcement officers need to plan its enforcement

schedule so that the visit covers all NGOs that received grants. This is to ensure health promotion activities and projects are carried out effectively and achieved the desired objectives. PART III - THE MANAGEMENT OF FEDERAL STATUTORY BODIES SUBSIDIARY

COMPANIES Currently there are 204 subsidiary and sub-subsidiary companies of Federal Statutory Bodies which have been gazetted to be audited by the National Audit Department. The objectives of incorporating these subsidiaries are for business activities, investments and socio economic. The business activities are profit oriented so as to obtain a reasonable return and to provide more efficient and effective services to the public. As at May, 2011 a total of 99 Federal Statutory Bodies Subsidiary Companies and 55 sub-subsidiaries financial statements were received for the year 2006 to 2009. These subsidiaries and sub-subsidiaries were analysed in respect of their financial status and performance, dividends, bonuses and tax payments. The analysis showed that the Federal Statutory Bodies had a total investment of RM3.74 billion in these subsidiaries as at 2009. Overall, profit before tax for these 154 subsidiaries and sub-subsidiaries for the year 2009 amounted to RM439.56 million which showed a significant increase as compared to RM322.62 million for the year 2008. Audit analysis revealed that 32 subsidiaries recorded profit before tax for 4 consecutive years amounting to RM656.83 million while 6 other subsidiaries recorded losses totalling RM79.56 million for the same period. Meanwhile 24 subsidiaries paid dividends to their respective Parent Bodies totalling RM156.46 million and 4 of which paid dividends for 4 consecutive years. Subsidiary companies under the financial and hotel sectors paid the highest tax.

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Besides that, 36 out of 154 subsidiaries and sub-subsidiaries paid taxes amounting to RM181.70 million to the Government. There are also 23 inactive companies out of which 4 had not commenced operation since incorporated. Management audit was conducted on 17 subsidiaries in 2010 and 1 of the audit findings were reported in full while 2 of which were reported in summary form. Generally, the management of the Federal Statutory Body’s companies was good. However, there are several financial

management weaknesses which need improvements particularly on the internal controls. The Federal Statutory Bodies companies had in fact planned its’ activities well.

However, in the implementation of activities there are still several weaknesses which need to be addressed so as to ensure that they are implemented efficiently, properly and achieved its objectives. MANAGEMENT OF MAJUIKAN PTE. LIMITED (Subsidiary Of Fisheries Development Authority Of Malaysia) The Fisheries Development Authority of Malaysia (LKIM) had incorporated Majuikan Pte. Limited (Majuikan) on 7th April 1997 with an authorised capital of RM15 million and a paid up capital of RM8.92 million. Majuikan also incorporated 7 subsidiaries and had investments in 3 associate companies. The objective of Majuikan is to serve as a business branch and to carry out LKIM’s fishery commercialising function. In the year

2005, Majuikan recorded a profit after tax of RM1.99 million. This profit was recorded through the collection of import duties of RM1.25 per kilogram of fish imported into Malaysia. However, beginning 2006 until 2009 Majuikan showed losses of RM3.64 million to RM5.82 million a year. This is due to the withdrawal of the import duties imposed by Majuikan by LKIM beginning on January 2006. As a result, the accumulated losses of Majuikan as at 31st December 2009 were RM12.08 million. Majuikan has also taken advances from LKIM totalling RM27.10 million as at the end of 2009 to finance its operations, investments and advances to 7 subsidiaries. From 1994 to 2010 Majuikan had invested RM12.88 million in 7 subsidiaries. All the 7 subsidiaries had recorded a drop in their shareholders funds and had accumulated losses totalling RM7.68 million as at the end of 2009. However 3 subsidiaries have begun to show positive results recently. Asas Ombak Sdn. Berhad and Majuikan Forwarding Sdn. Berhad showed profits after tax from the year 2008 and Majuikan Engineering & Maritime Services Sdn. Berhad from 2007. A management Audit had been carried out on Majuikan’s wholly owned subsidiary that is Asas Ombak Sdn. Berhad (AOSB). AOSB was incorporated on 6 April 1995 under the Company’s Act

1965 with an authorised and paid up capital of RM5 million. AOSB main activity is to carry out deep sea fishing and selling of fishery equipments. An audit carried out in Majuikan and AOSB revealed the following matters:

The financial performance of Majuikan and its group was not satisfactory as shown in the high accumulated losses and RM27.10 million owing to LKIM.

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AOSB fishing vessels are too old that is between 7 to 25 years. This caused the

vessels to break down frequently and require very high maintenance costs. From 2007 to 2009, AOSB spent on the average RM951,503 a year to maintain the 10 fishing vessels.

Majuikan Board of Directors rejected a proposal to appoint a contractor

recommended by a consultant to construct 4 steel vessels. Instead the Board appointed another company which does not have experience in building steel fishing vessels. This resulted in the failure to complete the construction of the vessels within the time and specifications stipulated. In consequence, as at the end of December 2009 AOSB still owes Agro Bank RM2.49 million out of RM5 million loans approved. AOSB also failed to pay interests amounting to RM54,541 to Agro Bank. The 4 steel vessels are rusty and abandoned in an open area.

AOSB had paid a total of RM914,500 to a contractor to construct fibre glass

vessels. Out of that amount, a sum of RM309,750 is for the engines which were already delivered by the supplier. The purchase of the engines was made through direct purchase and not through quotation as required under Majuikan Financial Management And Accounting Manual.

The AOSB Board had signed an agreement to construct the fibre glass vessels before getting Agro Bank’s approval. This has caused AOSB to change the

agreement which had already been signed and to sell 2 of its existing vessels for RM750,000.

AOSB had rented out fishing permits to Vietnamese fishermen at RM3,500 a

month for a trawler permit and RM2,000 for a rawai permit. Apart from that, the Vietnamese vessels enjoyed subsidised diesel by paying 10 cents commission per litre to AOSB.

There is no contract or agreement between AOSB and the vessels captains to

protect both parties interests because the captains are normally foreigners. Audit recommended that AOSB should have a mechanism to set target revenue for deep sea fishing and also the landing frequency of fishing vessels at LKIM jetties. AOSB should also ensure their activities do not contravene with the existing laws and only local fishermen are entitled to diesel subsidies. Apart from that, Majuikan should also ensure the selection of contractors is based on experience, expertise and financial capabilities in the construction of their fishing vessels. A comprehensive plan need to be in place for the procurement and construction of fishing vessels taking into account budget, vessels replacement and the maintenance costs involved. AOSB should have

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detail standard operating procedures for its daily operations in order to improve its financial management. Majuikan should monitor AOSB activities so that it remains competitive and have a strong financial footing.