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AUDITOR GENERAL REPORTACTIVITIES OF THE FEDERAL MINISTRIES/DEPARTMENTS
AND MANAGEMENT OF THE GOVERNMENT COMPANIES
SERIES 1
NATIONAL AUDIT DEPARTMENTMALAYSIA
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CONTENTS
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CONTENTS
PAGE
PREFACE xi
SYNOPSIS 1
PART IIMPLEMENTATION OF ACTIVITIES BY THE FEDERALMINISTRIES/DEPARTMENTS
PRIME MINISTERS DEPARTMENT
Malaysian Mari t ime Enfo rcement Agency
1. Management On The Acquiring Of Movable AndImmovable Assets 5
Department Of Nat ional Unity And Integ rat ion
2. Management Of Grant, Payment Of Activities AndData Collection Of Rukun Tetangga 8
MINISTRY OF FINANCE
Inland Revenue Board Of Malaysia
3. Construction Of The Processing, Production AndWarehouse Centre Project In Bangi 11
4. Management On Company Instalment PaymentScheme (CP204 Form) 14
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ROYAL MALAYSIAN CUSTOMS DEPARTMENT
5. Management Of Export Activities 16
6. Risk Management On Clearance Of Air CargoImports 19
MINISTRY OF WORKSPubl ic Work s Department
7. Contract Administration Of PWD Projects 21
MINISTRY OF TRANSPORT8. Upgrading Of Kota Kinabalu International Airport
Project, Sabah 23
MINISTRY OF FEDERAL TERRITORIES ANDURBAN WELLBEINGKuala Lumpur City Hal l
9. Management Of Recreational Facility Projects InKuala Lumpur City 26
MINISTRY OF EDUCATION MALAYSIA10. Management Of 1Malaysia Milk Programme 29
11. Construction And Equipment Procurement OfPreschool Project 32
12. Management Of Building And Compound CleaningServices At Schools/Educational Institutions 36
MINISTRY OF HEALTH13. Management Of Nursing Training Programme 39
14. Management Of Ambulance 42
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MINISTRY OF HOUSING AND LOCAL GOVERNMENTFire And Rescu e Department Of Malaysia
15. Management Of Fire Vehicles And Equipment 45
MINISTRY OF WOMEN, FAMILY AND COMMUNITYDEVELOPMENT16. Management Of Financial Assistance To
Non-Governmental Organisations 48
MINISTRY OF DEFENCE17. Management Of Dry Ration Supply For Royal
Malaysian Navy 50
MINISTRY OF HOME AFFAIRS18. Construction Of CIQ Complex And Jetty At Melaka
River Mouth, Melaka 52
Royal Malaysian Pol ice Force
19. Procurement Of Beechcraft King Air 350 Aircraft ForAir Operation Force 54
The Registry Of Soc iet ies Malaysia
20. Management Of Societies Registration Activity 57
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PART IIMANAGEMENT OF THE GOVERNMENT COMPANIES
21. Pendinginan Megajana Sdn. Bhd. 60
22. Sarawak Hidro Sdn. Bhd. 64
23. Halal Industry Development Corporation Sdn. Bhd. 67
24. Technology Park Malaysia College Sdn. Bhd. 70
POSTSCRIPT 75
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PREFACE
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PREFACE
1. Articles 106 and 107 of the Federal Constitution
require the Auditor General to audit the Federal
Governments Financial Statement, financial
management, activities as well as management of the
Federal Government Companies and submit his
reports to His Majesty, Seri Paduka Baginda Yang di-
Pertuan Agong and obtain his assent before tabling
them in Parliament. Beginning 2013, the Auditor
Generals Report will be tabled at each sitting of the
Parliament or three times a year in line with the
Government Transformation Programme 2.0 in fighting
corruption under the National Key Result Areas. To
fulfil these responsibilities, the National Audit
Department needs to carry out 4 types of audit as
follows:
1.1. Attestation Audit- to give an opinion as to
whether the Federal Governments FinancialStatement for the year concerned shows a true and
fair view as well as its accounting records are
maintained properly and kept up to date.
1.2. Compliance Audit - to evaluate whether
the financial management of the Federal Ministries/
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Departments is in accordance with relevant
financial laws and regulations.
1.3. Performance Audit - to evaluate whetherFederal Government activities have been carried
out efficiently and economically to achieve their
desired objectives/goals.
1.4. Government Companies Management
Audit - to evaluate whether the Federal
Government Companies have been managed in a
proper manner.
2. My report on the implementation of activities of
the Federal Ministries/Departments and the
management of Government Companies for the year
2012 consists of 2 parts as follows:
Part I : Implementation Of Activities Of The
Federal Ministries/Departments
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 construction, infrastructure, maintenance,
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asset management, law enforcement, procurement,
revenue management, education, health, agriculture,
human capital, contract administration and socio-
economic upgrading programmes. This report contains
observations from the audit of 21 programmes/
activities/projects of 15 Federal Ministries/
Departments and management of 4 Government
Companies. Generally, weaknesses observed are
such as improper payment; work/procurement did not
follow specifications/was of low quality/was unsuitable;
unreasonable delays; wastage; weaknesses in
revenue management and management of the
Governments assets. The said weaknesses were due
to negligence when complying with the Governments
rules/procedures; programmes/activities/projects and
scopes/specifications were not planned and identifiedproperly; work of contractors/vendors/consultants was
not monitored and supervised closely; poor project
management skills; decisions on procurement were
made late; information systems of the Ministries/
Departments/Government Companies were
incomplete and not updated; outcome/impact of
programmes/activities/projects was not given due
attention; shortage of funds for asset maintenance;
and insufficient officers to collect revenue.
4. In order to help the Ministries/Departments/
Government Companies to rectify the weaknesses
which were highlighted in the Auditor Generals Report
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for the years 2010 and 2011, a total of 653
recommendations were made. In the 2012 Auditor
Generals Report Series 1, a total of 143
recommendations were made to the Ministries/
Departments/Government Companies for corrective
actions or to prevent the same weaknesses from
recurring. The National Audit Department will monitor
continuously to ensure appropriate actions will be
taken by the relevant parties and will report the
updated status in the 2013 Auditor Generals Report.
5. I would like to express my thanks to all the
officers of the Ministries/Departments/Government
Companies who have given their cooperation to my
officers during the audit. I also wish to express my
appreciation and thanks to my officers who have giventheir commitment and worked diligently to complete
this report.
(TAN SRI DATO SETIA HAJI AMBRIN BIN BUANG)
Auditor General of MalaysiaPutrajaya
25 March 2013
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SYNOPSIS
AUDITOR GENERAL REPORTFOR THE YEAR 2012
ON ACTIVITIES OF THEFEDERAL
MINISTRIES/DEPARTMENTS ANDMANAGEMENT OF THE
GOVERNMENT COMPANIES
NATIONAL AUDIT DEPARTMENTMALAYSIA
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SYNOPSIS
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SYNOPSIS
PART I- IMPLEMENTATION OF ACTIVITIES BY THE
FEDERAL MINISTRIES/DEPARTMENTS
PRIME MINISTERS DEPARTMENTMalaysian Mari t ime Enforcement Agency
1. Management On The Ac qui r ing Of Movable
And Immovable Assets
a. The Malaysian Maritime Enforcement Agency
(MMEA) was formed after a maritime management
studies conducted by the Government in April1999. The result of the study showed that the
maritime enforcement was not very effective
because there were over 12 departments/agencies
responsible for the management of maritime. This
resulted in duplication of functions and
responsibilities and uneconomic use of resources.
In August 2002, the Federal Government agreed to
the establishment of MMEA as an integrated team
through merging existing maritime enforcement
agencies. The Government decided that MMEA
took over the function of the coast guard from the
maritime agencies involved such as the Marine
Operation Force of the Royal Malaysian Police, the
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Royal Malaysian Customs Department, the
Department of Fisheries Malaysia, the Marine
Department of Malaysia and the Royal Malaysian
Navy. Based on the decision of the Government,
all agencies involved should hand over their assets
related to maritime enforcement. Audit findings
revealed that, in general, the management on the
acquiring of movable and immovable assets of
MMEA was satisfactory. However, there were
some weaknesses as follows:
i. age of ships/boats received exceeded their
useful life;
ii. immovable assets received were damaged and
left idle;
iii. immovable assets were not fully received;
iv. jetty/office that was handed over/shared was
not suitable for use/could not be used;
v. the jetty in Tawau District Maritime which was
handed over to MMEA was uneconomical to
repair;
vi. assets handed over could not be modified;
vii. KEW. PA forms for movable assets
(ships/boats) were not prepared; and
viii. staffing for ships/boats handed over were not
provided.
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b. It is recommended that MMEA considers the
following actions:
i. take prompt measures on immovable assetswhich were damaged and left idle by repairing
or disposing them;
ii. hold discussion with the parties involved such
as the Marine Operation Force, the Royal
Malaysian Customs Department and the
Department of Fisheries so that they couldjointly use the jetty. In addition, adequate office
space should be provided to MMEA staff.
Among the things that could be discussed are
choosing a suitable area for jetty operation and
application for additional operational office
space for enforcement operations;
iii. construct a new jetty in Tawau District Maritime
to ensure smooth enforcement operations of
MMEA;
iv. find a solution so that the building in Kuala
Kedah base could be repaired and renovated
for use;
v. expose the staff involved to MMEA asset
management based on relevant circulars to
ensure proper implementation; and
vi. urgently provide additional MMEA staff as
intake offers to members of the Marine
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Operation Force and the Royal Malaysian
Customs Department received no response.
MMEA operations could be affected due to
insufficient staff to operate ships/boats
delivered.
Department Of Nation al Unity And Integrat ion
2. Managemen t Of Grant, Payment Of Ac t ivi t ies
An d Data Col lect ion Of Rukun Tetangg a
a. The Rukun Tetangga was established by the
Government in 1975 under the Essential (Rukun
Tetangga) Regulations 1975 (PU (A) 279/75) for
security purposes through mandatory patrols by
residents due to the threat of subversive elements
at that time. The function of the Rukun Tetangga
Area (KRT) has been expanded by the Department
of National Unity and Integration (DNUI) from time
to time by encouraging KRT to organise activities
focusing on elements of unity, community, charity,
education, economy or activities which are
beneficial to the local community. The objective of
Rukun Tetangga activities is to preserve, enhance
and strengthen national unity and integration in line
with the Governments policies/rules.Audit findings
revealed that generally, the management of
grant/payment and data collection of Rukun
Tetangga by DNUI were unsatisfactory and needed
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further improvement. Among the weaknesses
found were as follows:
i. the amount of grant distributed was not uniform;
ii. grant distribution/payment of Rukun Tetangga
activities was not done accordingly;
iii. reports/statistics of KRT activities generated
from DNUI Information System were not up to
date;
iv. records/reports of KRT activities/finance were
not up to date;
v. the number of activities performed by KRT as
stated in the form that was used to obtain
Rukun Tetangga information could not be
verified;
vi. justification for the assessment of KRT
activeness level could not be verified;
vii. vacant posts at DNUI district level were not
being filled/filled through administrative
means/task performed through One Man Show;
and
viii. limited number of vehicles for supervision
purposes of KRT.
b. It is recommended that DNUI takes the followingactions:
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i. fix the amount of grant to be distributed to KRT
based on its activeness level for uniformity
purposes. Justification should be provided in
writing by state DNUI if the amount of grant
distributed is more/less than the fixed amount;
ii. clearly state in writing the need for KRT to
comply with the Guidelines on Rukun Tetangga
Account and Inventory Control (Panduan
Pengendalian Akaun Dan Inventori Rukun
Tetangga) in financial management. Adequate
training relating to the Governments financial
management should also be provided. In
addition, monitoring on KRTs financial
management should be enhanced;
iii. evaluate the level of acceptance/accessibility/
feasibility for KRT to key in the required
information into the e-RT modules in the DNUI
Information System;
iv. organise the reports relating to Rukun Tetangga
activities in files and issue reminder/warning
letter to KRT which did not submit theinformation required;
v. ensure that the KRT Performance Evaluation
Form is prepared and could be cross
checked/supported with the activity reports
submitted by KRT;
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i. project was not completed within the original
contract period where 2 Extensions of Time of
643 days were approved. The approved
extension of time had exceeded the original
contract period;
ii. the main consultant has yet to obtain approval
from the Fire and Rescue Department of
Malaysia even though the project had been
completed in October 2011;
iii. the Processing Centre in Pandan Indah, Kuala
Lumpur has not been shifted to the Processing,
Production and Warehouse Centre in Bangi.
The delay in shifting the Centre to the new
building has caused IRBM to incur rental cost of
RM4.70 million as calculated from the issuance
date of the Certificate of Practical Completion
on 28 October 2011 till February 2013.
Meanwhile, as at February 2013, utility and
security service fees totalling RM505,600 had
been charged as project cost since the
completion of the building in October 2011;
iv. payment to 4 consultants appointed in 2003
amounting to RM529,733 was an extravagance
as the reports produced by them could not be
used;
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v. 8 Variation Orders with an additional cost of
RM3.27 million which involved changes/addition
to the initial works stipulated in the contract
were not approved by the Economic Planning
Unit (EPU);
vi. the building design was unsuitable/impractical
and the quality of construction works was not
satisfactory; and
vii. planning on the location of Customer ServiceCentre was not satisfactory because IRBM took
a period of one year and 9 months to decide on
the location.
b. In order to address the weaknesses highlighted
and to prevent them from recurring in otherprojects, it is recommended that IRBM and the
Public Works Department (PWD) take the following
actions:
i. IRBM should plan carefully when preparing the
project brief;
ii. IRBM and PWD should ensure that the main
consultant is responsible for the overall
planning, design, management and
coordination with other consultants/agencies;
iii. IRBM should obtain approval from EPU on any
addition/changes to the scope of the project;
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iv. PWD should take action against the main
consultant for lack of supervision on the project
which resulted in poor quality of works that did
not comply with the standard set; and
v. PWD should closely monitor on the works
performed by the contractor to prevent any
major works defects.
In land Revenue Board Of Malaysia
4. Managemen t On Company Ins talment Payment
Scheme (CP204 Form )
a. Under the Self Assessment System, a company is
responsible to declare and pay income tax
voluntarily. The Inland Revenue Board of Malaysia
(IRBM) will issue Tax Estimation Form (CP204Form) by stages according to companies account
closing date. A company is required to furnish the
tax estimate not later than 30 days before the
beginning of the basis period for the year of
assessment. Each instalment of estimated tax
shall be paid on or before the due date beginningfrom the second month of the basis period for the
year of assessment, which is on the 10th every
month. The Notice of Instalment Payment (CP205
Form) will be issued to taxpayers who fail to submit
the CP204 Form. Failure to comply with the
schedule of estimated tax instalment payments will
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result in a tax increase of 10% which will be
imposed on instalments not paid. Tax increase of
10% also applies if the difference between the
actual tax payable and revised tax estimate or the
original tax estimate exceeds 30% of the actual tax
payable. Failure/delay to furnish the tax estimate is
an offence under the Income Tax Act (ITA) 1967.
Audit findings revealed that the overall
management on company tax instalment payment
scheme was satisfactory. However, there were
several weaknesses as follows:
i. CP204 Form issued to companies not liable to
tax;
ii. increase in tax amounting to RM136,335 under
subsection 107C(9) ITA 1967 was not imposedon companies for failure to pay tax estimate
declared in the CP204 Form;
iii. increase in tax amounting to RM41,193 under
section 103 ITA 1967 was not imposed on tax
arrears;
iv. action was not taken to prosecute against 5,181
companies that failed/late in paying the CP204
compounds;
v. delay in instituting legal proceedings against 61
companies which failed to pay CP204
compounds; and
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vi. delay in taking action to prosecute against 245
companies which failed to pay CP204
compounds due to time taken in allowing
reminder letters to be sent.
b. In order to further improve the management on
instalment payment scheme, it is recommended
that IRBM considers the following:
i. identify the status of tax payable for eachcompany before the CP204 Form is issued;
ii. apply for additional officers in IRBM
Department/Branch so that delay in
prosecutions against companies which fail to
pay CP204 compound could be overcome;
iii. ensure that IRBM Department/Branch takes
immediate prosecution against companies that
failed to pay CP204 compound within the
stipulated period. In this regard, supervision
should be carried out by IRBM Headquarters;
and
iv. ensure that prosecution is not delayed because
of issuing reminder letters to companies. For
this purpose, duration for issuance of reminder
letters and the waiting time for companies to
respond should be determined.
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MINISTRY OF FINANCE
Royal Malaysian Custom s Department
5. Managemen t Of Expo rt Ac t ivi t ies
a. The Royal Malaysian Customs Department
(RMCD) is responsible for the collection of indirect
taxes such as import duties, export duties, excise
duties, sales tax, service tax and also levy imposed
on commercial and industrial activities carried out
in Malaysia. RMCD also provides customsfacilitations to the trading and industrial sectors as
well as ensuring regulatory compliance to curb
revenue leakage. Generally, Audit findings
revealed that export activities were properly
managed by RMCD. However, there were some
weaknesses that should be addressed by RMCD
as follows:
i. the Standard Operating Procedures (SOP)
relating to management and operation controls
on the export of crude oil was incomplete and
not clear, resulting in unsatisfactory physical
controls on the export of crude oil;ii. there were cases where forwarding agents
could still hand over customs declaration forms
to the Assessing Officer;
iii. a total of 9,444 K8 customs forms were still
outstanding due to weaknesses in monitoring
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Royal Malaysian Custom s Department
6. Risk Management On Clearanc e Of Air Cargo
Impor ts
a. Clearance of imported goods by the Royal
Malaysian Customs Department (RMCD) is subject
to the laws set by the Government and the
guidelines set by World Customs Organisation
(WCO). RMCD is responsible to ensure that the
movement of vessels, vehicles, aircrafts and
consumer goods across national borders is in
compliance with Customs laws and trade
regulations. Among the strategies identified to
assist RMCD in implementing its functions and
duties is the enhancement of trade facilities on
legal trade movement by creating an Integrated
Risk Management System. Risk management canassist RMCD in identifying high-risk
transactions/importers with the objectives of
carrying out detailed document checks, physical
inspections or post import audits to curb revenue
leakages and prevent the imports of prohibited
goods into the country. For the period 2010 to
2012, the total value of trade imports to Malaysia
was RM1,627.411 billion and RM337.594 billion
(20.7%) was via air cargo. Audit findings revealed
that risk management on clearance of air cargo
imports was not widely used by RMCD. Among the
weaknesses found were as follows:
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i. the risk management framework of RMCD was
not sufficient as well as not in line with the risk
management guidelines and standards issued
by WCO;
ii. risk management systems and procedures
were neither comprehensive nor updated;
iii. insufficient personnel trained in the latest
techniques of risk management as training in
countries with advanced risk managementsystem was discontinued in 2009;
iv. the concept of risk management has not been
fully applied as physical inspections were still
conducted regularly on imported goods not
identified under the risk category by the
Customs Verification Initiatives (CVI) Branch;
and
v. monitoring programmes/reviews for continuous
improvement of the risk management
framework were not prepared/implemented.
b. It is recommended that RMCD gives dueconsideration to the following:
i. establish a risk management framework and
structure in line with the guidelines and
standards issued by WCO;
ii. provide comprehensive and updated risk
management systems and procedures;
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officer to ensure that the Government gets value
and maximum benefit for payment made. For the
procurement of work, it should cover the scope of
work specified and agreed to in the offer/contract.
In addition, the work must be completed within the
time specified in the contract. If contractors do not
complete the work on schedule, penalties should
be imposed. Based on the SKALA Statistical
Report, Public Works Department (PWD) managed
633 projects under the Ninth Malaysia Plan worth
RM36.740 billion. Audit findings revealed that
overall, contract administration of PWD projects
was not satisfactory due to weaknesses in
compliance with the rules. Among the weaknesses
identified were as follows:
i. contract clause was not in line with the
Treasury Circular;
ii. inconsistency in the use of PWD standard
contract forms;
iii. inaccurate validity period and rate of
Performance Bond/Performance GuaranteeSum;
iv. insurance policy was not managed properly;
v. delay in approving Extension of Time; and
vi. delay in making good defects.
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b. It is recommended that PWD takes the following
actions:
i. ensure consistency between contract clauses
and the Governments rules.
ii. instruct all PWD offices in the country to be
consistent in using new standard contract forms
so that new rules could be applied to protect the
interest of the Government and contractors;
iii. enhance supervision and monitoring to ensure
accuracy of all documents in order to protect
the Governments interest;
iv. appoint third party to repair the defects which
were not repaired by the defaulting contractor.
The cost involved could be charged to thePerformance Bond/claim which has not been
paid to the defaulting contractor; and
v. provide training to officers involved in contract
administration to improve their knowledge.
MINISTRY OF TRANSPORT
8. Upgrading Of Kota Kinabalu Internat ional
Airp ort Project, Sabah
a. The Upgrading of the Kota Kinabalu International
Airport Project (KKIA Project) which was situated in
the district of Penampang, Sabah was to enable
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better handling of passengers and aircrafts
operation. KKIA Project involved 2 packages.
Package 1 was to upgrade the Terminal 1 Building
in terms of increasing the floor area; passenger
loading bridge; reclaim baggage carousel; open
vehicle parking and aircraft parking bays. Whereas
Package 2 was involved with upgrading airside
improvements; Terminal 2 (LCCT) and air traffic
control tower as well as the administration building
of Department of Civil Aviation. The cost of
Package 1 was RM720 million with a 36 month
completion period starting from 21 May 2006 until
20 May 2009. Meanwhile the cost of Package 2
was RM720 million with a 36 month completion
period starting from 21 April 2006 until 20 April
2009. Audit findings revealed that in general the
upgrading of KKIA Project was not satisfactory
because there were several weaknesses in the
project implementation. However, the overall work
progress of Package 1 was on schedule with 3
Extensions of Time totalling 290 days while for
Package 2, the actual work progress as at 31 May2012 was 94.3% compared to 94.2% as scheduled
after taking into consideration 5 Extensions of Time
totalling 1,106 days and a Supplemental
Agreement of 8 months. Among the weaknesses
identified were as follows:
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Sdn. Bhd. failed to complete and ensure that a
new contractor is appointed immediately to
complete Package 2 as well as to repair low
quality work; and
iv. ensure that the objectives of KKIA Project are
achieved based on the master plan. Among the
criteria in the master plan was focusing on
expansion of infrastructure in the vicinity of
Terminal 1 which was the KKIA Main Terminal.
Therefore, the Ministry should firmly ensure that
all actions are taken systematically including
urging AirAsia to move from Terminal 2 to
Terminal 1.
MINISTRY OF FEDERAL TERRITORIES ANDURBAN WELLBEING
Kuala Lumpu r Ci ty Hal l
9. Managemen t Of Recreat ion al Faci l i ty Projects
In Kuala Lum pu r City
a. The objective of having Recreational Facility
Projects in Kuala Lumpur City is to provide a
beautiful, clean and tidy urban landscape with
beautification design characteristics which are
dynamic and comprehensive for the satisfaction of
all city dwellers and tourists. These projects include
maintenance of public parks, maintenance of open
land space and children playgrounds as well as
maintenance/trimming of trees and upgrading of
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existing landscapes. For the period 2010 to 2012,
an amount of RM182.76 million has been allocated
for the management of Recreational Facility
Projects but only a total of RM123.32 million
(67.5%) was spent till December 2012. The
Department of Landscape and Recreation (JLR) of
Kuala Lumpur City Hall (DBKL) is responsible for
the planning, management and maintenance of
urban landscapes in Kuala Lumpur City. The main
components of these projects include Soft
Landscape (Softscape), Hard Landscape
(Hardscape) and Buildings. Audit findings revealed
that the physical performance of 4 out of 5 projects
audited was not satisfactory because of failure to
complete the projects on schedule. The contractors
involved were approved between one to threeExtensions of Time with a duration period of 174 to
617 days. In addition, the management of the 5
projects was also not satisfactory due to the
following weaknesses:
i. no initial investigation/assessment of project
sites was done;
ii. the completed projects still cannot be utilised or
enjoyed by the public and tourists;
iii. the implementation of projects was not in
accordance with the terms, conditions and
specifications of the contracts;
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iv. JLR did not fully use the Landscape Guidelines
issued by the National Landscape Department
and other related regulations as a guide for best
practices;
v. JLR did not maintain inventory records for living
assets; and
vi. JLR did not satisfactorily manage the
maintenance of landscape and recreational
facilities.
b. To improve the weaknesses highlighted, it is
recommended that DBKL considers the following:
i. initial investigation/assessment of project site
should be done in advance for each future
project undertaken;
ii. the completed facilities should be utilised fully
to avoid wastage;
iii. monitoring should be enhanced during project
implementation to ensure that work done is in
accordance with terms, conditions andspecifications stipulated in contracts; and
iv. periodic maintenance should be implemented
according to fixed schedule to ensure that the
project could be utilised optimally. In addition,
monitoring should also be undertaken to reduce
vandalism and theft cases.
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MINISTRY OF EDUCATION MALAYSIA10. Managemen t Of 1Malaysia Milk Prog ramme
a. 1Malaysia Milk Programme (PS1M) is acontinuation of the School Milk Programme (PSS)
which was initiated in 1983 and implemented by
the Ministry of Education (Ministry) to improve the
nutritional level of primary school students,
particularly in rural areas. The purpose of this
programme is to build a generation which is
brilliant, stronger, healthier and mentally more
dynamic in the future. Under PS1M, school
students will be given Ultra High Temperature
(UHT) milk, which can be enjoyed by more than
3 million pupils throughout the country involving
7,733 primary schools. In early 2011, the Ministry
of Finance Malaysia had approved procurement forPS1M amounting to RM188.33 million through 4
contractors. However, the actual value of the
contract was RM170.93 million after the Ministry
revaluated the eligibility of the milk recipients. The
contractors were fully responsible for the whole
process of milk supply and its safe consumption bystudents. Audit findings revealed that generally, the
management of PS1M was not satisfactory based
on the performance from January 2011 until July
2012 where supply was only 21.9% and
expenditure already reached 39.7%. Other
weaknesses were as follows:
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i. some terms of the contract were not complied
with especially the absence of Person In
Charge (PIC) or contractors representative at
each milk drinking session; disposable items
(milk cartons) were not disposed of; handbook
was not supplied; posters were not displayed at
the appropriate places; and training as well as
explanation to teachers and pupils were not
carried out;
ii. inappropriate storage space for milk stock; and
iii. delay in milk supply to few schools.
b. In order to rectify the weaknesses highlighted and
further improve the quality of PS1M management,
the parties involved should give consideration to
the following:
i. the Ministry should monitor closely on the milk
handling by contractors so that the milk
supplied is always in good condition and safe
for consumption by the school children. The
Ministry should also ensure that contractorscomply with terms of the contract and schools
are not burdened with tasks outside their
responsibilities;
ii. the Ministry should review the terms and
conditions of the contract which are
unreasonable and vague by taking into account
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the number and location of the primary schools
in the programme, the ability of contractors to
provide the PIC at each milk drinking session in
each school as well as logistics and facilities for
milk storage, thereby enabling contractors to
plan more effectively their financial strategies,
human resources, equipment and logistics as
well as comply with the terms of the contract;
iii. the contractors should provide information and
education on a regular basis to teachers/
students involved with PS1M. For example,
visual training (CD) could be presented during
the milk drinking session. Appointment of PIC
should be proper and valid for effective
supervision and monitoring. In addition, posters
should be prepared and displayed at
appropriate places so that they could be easily
seen by pupils and teachers;
iv. the Ministry should prepare standardised and
up-to-date record for all milk stock received and
distributed for control and monitoring purposes;
v. the Ministry should identify safe and appropriate
space for milk storage in schools to prevent
milk contamination and theft; and
vi. the Ministry should impose fines for delay in
milk supply and claim from the relevant
contractor.
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11. Cons truct ion An d Equipment Procu rement Of
Presch oo l Project
a. Education is one of the 6 National Key ResultAreas (NKRA). The aspirations of Education NKRA
are to improve students performance and to widen
access to quality education. The Ministry of
Education (Ministry) has set 4 focus areas under
the Education NKRA and one of them is preschool
education. The Ministry has identified 7 thrusts to
strengthen the governance and delivery of quality
preschool education. One of the thrusts is to
increase the number of preschool classes in areas
of high demand, urban slums, rural and remote
areas. For this purpose, the Ministry has embarked
on an Preschool Expansion Project to build and
complete the preschool buildings and other relatedfacilities including procurement of preschool
equipment. The project was implemented in three
phases involving 1,237 schools and 1,330 classes.
Implementation of the project includes three
categories namely New Build, Renovation, and
Complete Build. Audit findings revealed that theperformance of the Preschool Expansion Project
for the New Build category was less than
satisfactory because 19 (82.6%) of the 23 projects
were delayed between 44 to 571 days. Meanwhile,
the performance of 7 Renovation projects audited
was good because the projects were completed on
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schedule. However, there were still weaknesses in
the management of this project which could affect
its objectives as follows:
i. there were weaknesses in the project planning
such as distribution of the number of projects to
contractors which did not take into
consideration the distance between the
locations of projects under a same sub package
and the stipulated completion period of projectswas not suitable;
ii. selection of site and project category was not
done with care, thereby affecting project cost
and its completion period;
iii. building design for the New Build Phase 1
projects and procurement of equipment werenot in accordance with the guidelines issued by
the Curriculum Development Division in 2008;
iv. there were preschool equipment/works which
did not comply with specifications and were of
low quality;
v. 26 units/sets of equipment were not supplied to
9 preschools, 250 units/sets of equipment were
not completely supplied to 7 preschools and
equipment were not supplied to 5 preschools as
the preschool buildings were not completed yet;
and
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vi. poor contract management for 8 out of 19
contracts as they were signed late between 34
and 146 days. In addition, the rules pertaining
to the Integrity Pact were not fully complied
with.
b. In order to overcome the weaknesses of the
Preschool Expansion Project as well as to ensure
that the Government obtains value for money, it is
recommended that the parties involved take the
following actions:
i. the Ministry should review the method used in
the distribution of projects to contractors so that
it is more reasonable and projects could be
completed on time. The time lag could beshortened if the planning, implementation and
distribution of the number of projects to
contractors take into consideration the ability of
contractors, project location connection
difficulties, weather and completion period of
project. In addition, close monitoring and
effective coordination among the Ministry,
consultants and contractors in managing this
project could also ensure that it is completed as
scheduled;
ii. the Ministry should ensure that all preschool
classes were designed according to
specifications prescribed so that teaching and
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learning sessions could be conducted in a
conducive environment and all teaching and
learning space could be fully utilised. The floor
plan of the renovation and construction of
preschool buildings and the equipment
specification list should be forwarded to the
State Education Department (JPN) and District
Education Office (PPD) involved for reference;
iii. consultant/JPN/PPD should ensure that the
work performed by the contractor complies with
the scope of work/contract specifications.
Works which have been paid but not performed
or not in accordance with specifications should
be carried out or rectified immediately or action
should be taken to deduct the cost of these
works from the final payment to contractor;
iv. the Ministry should ensure that all defects and
unsatisfactory construction works are identified
and rectified within the stipulated period. This is
to prevent the Government from incurring
losses relating to the repair costs. While for
projects with expired Defects Liability Period,
the Ministry should take proactive steps to
provide adequate funds and appoint contractors
for maintenance work;
v. the Ministry should ensure that all equipment
are tested and commissioned by consultants,
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contractors and JPN/PPD/school during the
project handover. List of supplied equipment
specifications should be provided to enable the
school to ascertain that equipment received
meet the required specifications, in good
condition, complete and safe to use. It is also to
enable the school to maintain equipment
records as prescribed in the Treasury Circulars
No. 5 of 2007 and No. 5 of 2009; and
vi. the Ministry should expedite the signing of
contracts and complete them with dates.
Regulations on Integrity Pact should also be
fully complied with to protect the Governments
interest.
12. Management Of Bui ld ing And CompoundCleaning Services At Schools/Educat ional
Inst i tu t ions
a. The Ministry of Education Malaysia (Ministry) hired
private companies to perform Building and
Compound Cleaning Services (KBK) at
schools/educational institutions so that good quality
cleaning services could be provided in the
premises. Among others, its objective is to form a
school environment which is clean, cheerful and
healthy for teachers and students so that a
conducive teaching and learning atmosphere could
be created. Audit findings revealed that the
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management of KBK was not satisfactory. Among
the weaknesses found were as follows:
i. improper contract management where 6 out of
20 contracts audited were signed late between
28 to 81 days and 13 companies were late
between 3 to 145 days in submitting their
Performance Bonds;
ii. terms of the contract were unclear/incomplete
when the number of machines/equipment did
not follow the standard norms; employees
profile information was provided only upon
request and there was no scheduled monitoring
by supervisors;
iii. companies did not comply with the terms and
conditions of the contract resulting in poor and
unsatisfactory service;
iv. improper payment was made for cleaning
services where deductions were not made for
absent workers; and
v. periodic monitoring was not carried out.
b. To overcome the weaknesses highlighted and to
enhance efficiency in the management of KBK
services, it is recommended that all parties
involved take the following actions:
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i. the Ministry should procure KBK services in
accordance with the regulations set by the
Government. Warning or revocation actions
should be taken against companies which failed
to submit the Performance Bonds within the
stipulated period;
ii. the Ministry should review the contract clauses
which are not clear and not in favour of the
Government. Details should be provided toavoid confusion and misinterpretation so that
enforcement could be implemented more
effectively;
iii. the Ministry should prepare video documentary
to provide better understanding for the District
Education Offices (PPD)/schools on how KBKservices should be rendered by companies;
iv. the Ministry/State Education Department
(JPN)/PPD/school should take stern actions
against companies which do not comply with
the terms and conditions of the contract by
imposing fine and reporting low quality serviceto the authorities. The Ministry may then
terminate and blacklist companies that still fail
to comply with the contract and improve the
performance of their services;
v. the Ministry should investigate all claims made
by companies and in the event of reduction of
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working time, deduction should be made. In the
case of excess payment, refund claims should
be made to companies and appropriate action
should be taken against those responsible;
vi. the Ministry should devise a more efficient
claims processing mechanism and ensure that
payments could be made within the time
stipulated. Guidelines on the imposition of fines
in case of breach of terms and conditions of
contract should be issued as reference for
JPN/PPD/school for uniformity of
implementation; and
vii. JPN/PPD should perform scheduled and
surprise checks to ensure that companies
perform their services satisfactorily. Monitoring
on schools may also clarify any confusion that
may arise in the interpretation of contract at
school level.
MINISTRY OF HEALTH
13. Management Of Nursing Train ing Programme
a. The Ministry of Health Malaysia (Ministry) was
responsible for implementing the nursing training
programme to meet requirement of current and
future Government hospitals and clinics. In 2012,
the Ministry had 11 Nursing Colleges and 5
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Colleges of Allied Health Sciences with a total of
8,489 students. Whereas from 2001 to 2012, a
total of 3,409 nursing students were stationed at
Private Nursing Colleges through outsourcing
programmes with MAHSA College, SEGI,
PUSRAWI and MASTERSKILL costing RM194
million (excluding scholarships and student
allowances). Two training programmes were
offered at Nursing College which were basic
nursing programme (diploma programme) that was
conducted within 3 years for appointment of nurses
and specialization programme (advanced diploma)
that was conducted within 6 to 12 months for
serving nurses. Audit findings revealed that the
overall nursing training programme conducted by
the Ministry was satisfactory. However there were
several weaknesses as follows:
i. vacant posts were not filled and appointment of
instructors did not comply with the Nursing
Board of Malaysia guidelines;
ii. payment for sewing uniforms and allowances ofoutsourcing students were not according to the
contract;
iii. there was no guidelines on debtors control;
iv. no approval was given by the authorities for
sewing fees, uniform allowances and student
travelling claims;
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v. facilities and teaching aids were obsolete and
inadequate, and
vi. weaknesses in the contract for security control.
b. In order to overcome the weaknesses and ensure
that the nursing training programmes are carried
out properly and efficiently, it is recommended that
the Ministry considers the following actions:
i. take immediate action in allocating and posting
of instructors;
ii. ensure that conditions on the appointment of
instructors are consistent with the requirements
of the Civil Service Commission and the
Nursing Board of Malaysia to ensure standard
quality teaching for all institutions that offer
nursing programmes in Malaysia;
iii. require the Private Nursing Colleges involved in
outsourcing programme to repay the value of
the uniform that did not comply with the
provision of the contract;
iv. establish latest guidelines and procedures on
debtor management and take appropriate
action to address the outstanding debt;
v. ensure that allowances and benefits provided to
students are approved by the authorities;
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b. In order to overcome the weaknesses highlighted,
it is recommended that the Ministry considers the
following actions:
i. study on a more appropriate mechanism of
performance measure including the need to
achieve KPI on time taken to reach accident
scenes so that patients safety and health could
be assured;
ii. ensure that procurement and rental for
ambulance are properly managed as well as
draw up a more comprehensive agreement;
iii. create a formal contract and expedite the
signing process of the agreement to protect the
Governments interest as well as complying
with the financial regulations on procurement
procedure;
iv. ensure that the amendments to contract are
done properly and checked by the Attorney
General or the Legal Advisor;
v. enhance collaboration with relevant parties toensure that accident cases are solved
immediately to facilitate repairs, insurance
claims and disposal process; and
vi. monitor on the maintenance of ambulance.
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MINISTRY OF HOUSING AND LOCALGOVERNMENT
Fire An d Rescue Department Of Malays ia15. Managemen t Of Fire Vehic les And Equ ipment
a. Fire vehicles and equipment are crucial in ensuring
successful rescue operations. All fire vehicles and
equipment should always be ready for use, utilized
optimally as well as maintained properly, efficiently
and effectively in providing fire rescue services.
Fire vehicles and equipment of the Fire and
Rescue Department of Malaysia (FRDM) include
fire engines, special vehicles, utility vehicles,
marine and aircraft vehicles. As at September
2012, FRDM had a total of 3,164 units fire vehicles
and equipment with various functions which were
worth RM1.397 billion. For the period 2009 to2012, a total of RM1.005 billion was spent on
procurement of fire vehicles and equipment while
RM206.76 million was spent on the maintenance of
fire vehicles and equipment. Audit findings
revealed that the overall management of FRDM fire
vehicles and equipment was satisfactory. However,there were still some weaknesses as follows:
i. performance of air service and turn out of
ground service did not achieve the norms set;
ii. fire vehicles and equipment of 53 (96%) Fire
Stations did not meet the standard
requirements;
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iii. distribution of fire vehicles and equipment was
not in accordance with the initial plan;
iv. Bertam Air Base was not fully utilised and thequality of construction was not satisfactory;
v. weaknesses in controlling the movement of
operation equipment in state FRDM and fire
stations;
vi. management of operation/scuba equipment and
spare parts of fire vehicles and equipment was
not satisfactory;
vii. maintenance of vehicles and equipment was
not satisfactory; and
viii. disposal of fire vehicles/equipment/spare parts
of aircrafts was not satisfactory.
b. In order to ensure that the objectives of the
management of fire vehicles and equipment are
achieved and the Government obtains value for
money, it is recommended that FRDM takes the
following actions:
i. review the turn out norms and requirements
based on factors such as limited storage space,
existing staff posts, fire stations with outworn
vehicles and their coverage areas;
ii. ensure that each application for construction of
new air base/fire station corresponds to
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applications for staff and facilities so that
facilities provided could be used optimally;
iii. provide a suitable mechanism for controlling themovement of operation equipment and scuba to
facilitate detection and avoidance of loss;
devise a suitable mechanism to control the
movement of operation equipments and scuba
appliances to facilitate tracking and prevent
loss;iv. monitor and carry out periodic checks to ensure
that all distribution, registration, maintenance of
records and disposal are properly done;
v. provide sufficient storage space for all assets/
inventories;
vi. set a time frame for repairs so that vehicles/
equipment/appliances are always in good
condition and ready for optimal use;
vii. conduct periodic training for officers of state
FRDM, Zone offices and Fire Stations on
assets management and storage procedures;
and
viii. provide sufficient posts for mechanic to ensure
that all repair and maintenance works could be
carried out properly in accordance with the
prescribed norms.
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MINISTRY OF WOMEN, FAMILY AND COMMUNITYDEVELOPMENT
16. Management Of Financial As sistanc e To Non -Governm ental Organisat ions
a. The Ministry of Women, Family and Community
Development (Ministry) through three agencies
namely the Department of Social Welfare (JKM),
the Department of Women's Development (JPW)
and the National Population and FamilyDevelopment Board (LPPKN) was responsible for
providing a variety of social development-oriented
programmes related to welfare, protection, care-
giving, community recovery, family and training.
Recognising the fact that the Ministry was unable
to implement its own programmes of social
development due to several constraints
encountered, the cooperation and participation of
Non-Governmental Organisations (NGOs) were
required for the success of these programmes.
Among the incentives provided by the Ministry to
encourage NGOs to undertake social welfare
services was to give financial assistance consistingof grants and Special Treasury Assistance (BKP).
A similar Audit was conducted and its issues were
raised in the 2006 Auditor GeneralsReport. Audit
findings revealed that providing financial
assistance to NGOs in general was in line with the
Government's intention to allow NGOs to assist the
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Government in strengthening family institution and
addressing social ills. However, the management
of providing financial assistance to NGOs was poor
as the weaknesses raised in 2006 were not fully
resolved. Among the weaknesses noted were as
follows:
i. distribution of grants/BKP did not meet the
conditions set where payment was made to
NGOs before the agreement was signed;ii. usage of Ration Grant, Administration Grant
and Special Students Allowance (Persons with
Disabilities) by NGOs did not comply with the
conditions stipulated in the agreement and the
guidelines issued by the Department of Social
Welfare; andiii. surplus of grants/BKP which was not used by
NGOs was not recouped as stipulated in the
agreement.
b. To overcome the weaknesses highlighted and to
prevent it from recurring in the future, it isrecommended that the Ministry and the agencies
involved in the management of Government
funding to NGOs take the following actions:
i. enhance monitoring based on the mechanism
set to ensure that NGOs comply with all the
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conditions stipulated and avoid misuse of
financial aid;
ii. enforce fully the terms of agreement and takestern action against NGOs which fail to comply
with the prescribed conditions;
iii. recoup the balance of the financial aid which
was not spent by NGOs in accordance with the
terms of agreement; and
iv. review the main resolutions of this activity such
as scope of allowable expenses so that the
objectives of providing financial assistance to
NGOs are fully achieved.
MINISTRY OF DEFENCE
17. Management Of Dry Ration Supp ly For Royal
Malays ian Navy
a. Supply of rations for the Malaysian Armed Forces
includes the supply of dry/fresh ration and food
catering. Based on the Food Supply Technique
Instruction, ration is defined as the food entitlement
of a person for a period of 24 hours beginning
midnight on that day until midnight the next day.
The Royal Malaysian Navy (NAVY) prepares and
cooks its own food and its supply of ration is based
on the Military Ration Measure as stated in the
Malaysian Armed Forces Council Order Vol. 7 Year
2003. The Procurement Division of the Ministry of
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Defence is responsible for managing the contract
on supply of dry ration needed by NAVY. Audit
findings revealed that the management of dry
ration supply for NAVY was not satisfactory.
Among the weaknesses identified were as follows:
i. contract value was very high compared to
actual needs;
ii. contract was signed late;
iii. terms and conditions of contract were not
complied with/executed;
iv. a ration store has not been constructed;
v. cleanliness and arrangement of ration at the
user store/galley were not suitable;
vi. stock of ration had expired; and
vii. maintenance of ledger records and adherence
to the financial regulation were not satisfactory.
b. In order to ensure that the management of dry
ration supply for NAVY is done properly, efficiently
and prudently, it is recommended that the parties
involved take the following actions:
i. revise the contract value for the supply of dry
ration for NAVY because actual payment made
was much lower compared to the value of the
contract;
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ii. ensure that contracts are signed within the
stipulated period to ensure that the
Governments interest is protected and the
contractors involved are legally bonded to fulfil
the contract terms and conditions;
iii. take prompt actions against contractors who do
not adhere to the terms and conditions of
contract so that the supply of ration is based on
the predetermined quality;
iv. construct a ration store and fill up the vacant
posts at 3rd Area Logistic Depot (DLW3) to
ensure that it functions efficiently and
effectively;
v. ensure that cleanliness, safety and storage of
ration are according to the needs; and
vi. ensure that financial regulations are always
complied with. Further investigation and
necessary action should be taken against
officers who violate financial regulations.
MINISTRY OF HOME AFFAIRS
18. Cons truct ion Of CIQ Complex A nd Jet ty At
Melaka River Mou th, Melaka
a. The construction of CIQ Complex and Jetty at
Melaka River Mouth (Muara Sungai Melaka) was
a project under the Ninth Malaysia Plan. The
objective of the project was to build a new
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i. MOHA should ensure that the acquisition of
construction land is settled before implementing
the project to prevent any future complications;
ii. PWD should ensure that the required IBS score
is fulfilled so that the construction quality and
productivity could be improved;
iii. PWD should ensure that the requirement of
Class F Contractor Involvement Programme is
met so that its objective could be achieved; andiv. PWD should ensure that contractor works are
satisfactory and carried out in accordance with
specifications and regulations.
Royal Malaysian Pol ice Force
19. Procu rement Of Beechc raft King Air 350Aircraf t For A ir Operat ion Forc e
a. Royal Malaysian Police Air Wing Unit was
established in February 1979 through a Cabinet
decision that all Police Air Wing aircraft should be
registered as civilian aircraft. The primary purpose
of this Unit is to carry out patrols on Malaysian
waters; search and rescue; sending small teams to
the crisis areas and provide air services to all
departments under the Ministry of Home Affairs
(MOHA). On 1 March 2012, the name of Royal
Malaysia Police Air Wing Unit was officially
changed to Air Operation Force (PGU). At the
beginning stage of its inception, PGU used single
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engine aircraft for its police operations. However,
the aircraft had several weaknesses such as the
flight patrol range and flight operations at night
were limited. There was also no pressurised cabin
that could expose the flight crew to oxygen
deficiency. In September 2005, PGU agreed to the
proposal made by MOHA for the acquisition of
Beechcraft King Air 350 which were more powerful
and sophisticated. This procurement was made
through direct negotiations with Hawker Pacific
Airservices Ltd via its agent EZ Aviation Sdn. Bhd.
The contract price for the purchase of 5 units
Beechcraft King Air 350 was USD58.25 million.
Audit findings revealed that the overall
procurement of Beechcraft King Air 350 was less
than satisfactory. Among the weaknesses identifiedwere as follows:
i. breach of conditions in the contract;
ii. delay in supplying aircrafts;
iii. the objectives of providing training to pilots and
engineers were not met; andiv. shortage of manpower especially pilots and
engineers.
b. It is recommended that MOHA/PGU considers the
following actions:
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i. ensure that payments made to the contractor
comply with the conditions as stipulated in the
contract;
ii. ensure that clauses in contract relating to
Ownership Take Over And Risk protect the
Governments interest to avoid losses in the
procurement process;
iii. impose Liquidated and Ascertained Damages
against the supplier for late delivery of specialoperations aircraft and equipment in
accordance with the conditions as stipulated in
the contract. Action should also be taken to
terminate the contract if the supplier fails to
deliver the aircrafts as required;
iv. ensure that detailed information on thecost/pricing of each procurement is clearly
stated so that the actual price of acquired
goods or services rendered could be identified;
v. ensure that the supplier gets recognition from
the Department of Civil Aviation (DCA) for pilots
who have attended training as pilot instructor;
vi. take proactive action to ensure that PGUs
engineers and mechanics pass additional
modules that have been set by DCA;
vii. ensure that plans are set for engineers to
acquire and possess necessary qualifications
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so that they can carry out and certify aircraft
maintenance works; and
viii. study the needs of posts for pilots andengineers and ensure that relevant parties give
due attention to such posts.
The Registry Of Societ ies Malays ia
20. Managemen t Of Soc iet ies Regist rat ion Act ivi ty
a. The Registry of Societies of Malaysia (ROS) was
established on 1 September 1949 with the
enforcement of Societies Ordinance 1949. This
department took over the duties of registration and
enforcement of societies which were carried out by
the Trade Union Office prior to this. The functions
of ROS, among others, are to administer andenforce the Societies Act 1966, Societies
Regulations 1984 and policies pertaining to
societies; control and supervise the activities of
societies so as not to become incompatible with
peace, welfare, security, public order, decorum or
morality; and to offer advisory and counselling
services related to the management of societies as
well as on how to manage and keep registration
records of registered societies. In line with these
functions, ROS is responsible for registering and
monitoring the movement and activities of societies
throughout the country. This is to ensure that
societies do not contravene their constitutions
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which can compromise security and public order
and also the laws of the country. Audit findings
revealed that the overall management of the
activities of societies was less than satisfactory.
Among the weaknesses identified were as follows:
i. delays in approving applications and
registration;
ii. the Registry of Societies Electronics System
which was developed could not be fully utilised;
iii. lack of monitoring and control in the submission
of annual returns and inspections with/without
notice;
iv. the record of complaints was not accurate and
updated and there were delays in conducting
investigations on complaints received; and
v. delays in gazetting deregistered societies.
b. It is recommended that ROS gives due
consideration to the following actions:
i. take immediate action to deregister thosesocieties which contravene the Societies Act
1966 or their own constitutions;
ii. make a decision on the status of applications
and approve the applications for registration of
societies within the stipulated time frame;
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iii. ensure that the system which has been
developed is capable of helping the department
to manage societies more efficiently;
iv. issue orders and instructions based on the
Societies Act 1966 to those societies which fail
to send their annual returns or send their
annual returns after the due date;
v. prepare a planned schedule and conduct
inspections with and without notice onregistered societies;
vi. conduct investigations on complaints received
within the stipulated time frame;
vii. gazette societies which have been
deregistered within the stipulated time frame;
viii. re-examine the job structure in all states so that
control and monitoring of societies could be
further improved; and
ix. emphasize on courses and training related to
the management of societies for officers and
staff directly involved.
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PART II- MANAGEMENT OF THE GOVERNMENT
COMPANIES
21. Pend ing inan Megajana Sdn. Bhd.
a. Pendinginan Megajana Sdn. Bhd. (Megajana) was
established on 1 September 1998 and is a
subsidiary of Cyberview Sdn. Bhd. (Cyberview)
with an authorised capital of RM50 million and paidup capital of RM26.42 million. Previously, the
shareholders of Megajana were Seseni Energy
Services Sdn. Bhd. (51%) and TNB Energy
Services Sdn. Bhd. (49%). On 1 March 2007,
Cyberview signed a Share Sale and Purchase
Agreement with the previous shareholders to
acquire 100% of Megajana shares at RM2.
Subsequently Cyberview sold 49% stake in
Megajana to Cofely Malaysia Sdn. Bhd. and signed
a Sale and Purchase Agreement on 23 November
2012 and Shareholders' Agreement on 17
December 2012. Megajana is the only district
cooling service provider in Cyberjaya and its mainactivity is to conduct business in developing,
owning, operating, maintaining, promoting, selling,
managing and servicing the District Cooling
System. The Town and Country Planning
Department of Peninsular Malaysia in its Physical
Planning Guidelines for Multimedia Super Corridor
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encouraged the usage of District Cooling System
(DCS) concept in Cyberjaya to make it a world
class Cyber city. Megajanas major income is from
payment of bill issued to building owners on a
monthly basis based on Chilled Water (CW)
consumption and declared capacity. Audit findings
revealed that the companys financial performance
for the financial years 2009 to 2011 was good as
the company recorded profit for 3 consecutive
years. Overall, the performance of its activity was
also good whereby the company was able to meet
the customers' needs based on the feedback
received from its customers. However, there were
weaknesses in the management of its activities,
financial management and corporate governance
as follows:
i. measurement used to evaluate the
performance of key performance indicators
(KPI) was different for the years audited. This
complicated the yearly comparison on the trend
of achievement for each element/measure;
ii. weaknesses in the management of activities
such as record on maintenance works carried
out was not complete; Chill Water Purchase
Agreement (CWPA) was not renewed;
customer complaints were not recorded
systematically; no Certificate for Machinery
Inspection from the Department of Occupational
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i. the management should set a consistent
element/method of measurement to assess the
actual performance of Megajanas KPIs each
year;
ii. the Board should ensure that Megajana
management complies with SOP and maintain
a complete record to ensure ongoing quality
service to customers;
iii. the management and Board of Megajana/Cyberview should ensure that the supply of
33kV power is carried out as planned so that
the national agenda in Cyberjaya could be
achieved;
iv. the Cyberview Audit Committee should set an
agenda relating to Megajana and otherCyberview subsidiaries in its Audit Committee
meetings as well as ensuring that the
Cyberview Internal Audit Unit plans and
implements a comprehensive audit on
Megajana on a regular and periodic basis;
v. the management should set training policies,plan annual training and prepare relevant SOPs
to improve employees knowledge and skills on
an ongoing basis;
vi. the management should ensure that Megajana
procurement process is carried out as
prescribed by issuing written appointment to its
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officers to represent in any committee so that
the interest of the company could be protected;
vii. the management and Cyberview Internal AuditUnit should regularly monitor the payments and
expenses process so that internal controls
could be improved; and
viii. the management should set a more
comprehensive guideline for the control of
assets; perform asset inspection/verification;ensure that asset records are regularly
updated; assets are appropriately labelled to
avoid loss so that company assets are
safeguarded.
22. Sarawak Hidro Sdn . Bh d.
a. Sarawak Hidro Sdn. Bhd. (SHSB) was known as
Bakun Hidro Sdn. Bhd. prior to April 2000. It was
established on 24 January 1994 with a paid up
capital of RM1.156 billion. A 99% wholly owned by
the Minister of Finance Incorporated, SHSB was
entrusted to develop and manage the Bakun
Hydroelectric Project (Bakun Project) after the
Government decided to acquire this project in
November 1997 from Ekran Berhad which was not
interested in pursuing the project due to the
economy downturn. The principal activities of
SHSB include the development of the Bakun
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project and being an environmentally friendly
energy supplier. The Bakun project was
implemented under 3 main packages which were
civil work (CW), electro-mechanical (EM) and
transmission line (TR). In August 2011, Bakun
project began generating power after the Power
Purchase Agreement was signed between SHSB
and Syarikat Sesco Berhad (SESCO) on 1 June
2011. Audit findings revealed the following:
i. overall financial performance was satisfactory
where the company generated profit and
showed a positive cash flow position for 3
consecutive years (2009 to 2011). However, the
net profit in 2009 and 2010 was contributed by
other income, of which 95% was generated
from interest earned on short term deposits.
Financial ratios were satisfactory and the
company carried out the activities with external
funding;
ii. performance of activities was not satisfactory as
there was delay in 4 major work packages
where the contractor was approved one to 3
Extensions of Time ranging from 555 to 1,403
days. In addition, 4 units turbine under Electro-
Mechanical work package (EM2) could not be
completed on schedule as stipulated in the
Power Purchase Agreement and there was
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consumption shortfall for the months of
January, July and August 2012;
iii. weaknesses in the project management suchas delay in signing the contract; risk of loss due
to extension of time and expired performance
bond. In addition, delay in completing the Civil
Works Package 2 (CW2) caused various claims
from Electro-Mechanical contractors due to
increase in cost of materials and labour. As at
December 2012, SHSB had paid a total of
RM375 million (86.9%) from the total claims of
RM431.59 million which had been approved by
the Board of Directors and the Ministry of
Finance; and
iv. financial management and corporate
governance were satisfactory except that the
companys strategic planning and standard
operating procedures for contract management
were not prepared yet. There were also
weaknesses in updating the company asset
register;
b. In order to further improve the performance of
business activities and corporate governance, it is
recommended that the parties involved take the
following actions:
i. the Board of Directors of SHSB should regularly
and closely monitor the projects undertaken
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from time to time so that objectives and benefits
targeted are achieved;
ii. the management of SHSB should ensure thatshort and long term strategic plans are
prepared so that the direction of the company
could be determined; and
iii. the management of SHSB should urgently
prepare the standard operating procedure to
ensure its contract/project management is donein a consistent and proper manner.
23. Halal Ind us try Development Corpo rat ion Sdn .
Bhd.
a. Halal Industry Development Corporation Sdn. Bhd.
(HDC) which was established on 18 September
2006 was wholly owned by the Ministry of Finance
Incorporated, Malaysia (MoF) with a paid up capital
of RM95 million. The authorised capital was
RM100 million. The Federal Government through
MoF held the majority share with 99.9% stake
while the Federal Lands Commissioner had 1share of RM1. HDCs main objectives were to
integrate the halal industry of the country as the
foundation of a global halal community; improve
the certification process; set up the Halal Support
Centre and introduce the concept of Halal
Malaysia. HDC was established to lead all the
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Government's initiative in coordinating the
development of the halal and economic growth as
a whole and to promote Malaysia as an
international halal hub. The roles and
responsibilities of HDC as set by the Government
were divided into three strategic divisions namely
the Halal Industry Development, Halal Integrity as
well as Halal Branding and Promotion. Audit
findings revealed the following:
i. revenue performance in 2011 improved after
experiencing a significant decline in 2010
compared to 2009. The main income was
deposit interest from banks/financial institutions
and rental from exhibition booths. The
expenditure also showed a declining trend from2009 to 2011. HDCs cash flow position
indicated a downward trend. This was mainly
due to the fact that HDC did not generate cash
flow from operating activities from 2009 to
2011;
ii. performance of activities as a whole was notsatisfactory and should be given due attention
by the Board of Directors as the development of
the halal industry could not be implemented as
planned; activities were not properly planned;
part of the work under the Government
assistance programmes could not be
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implemented within the period stipulated;
activities undertaken did not achieve the
objectives set; expenses for organising halal
activities were not done properly; lack of
monitoring and part of the work was not fully
documented; and
iii. there were still weaknesses in the financial
management and corporate governance which
needed to be resolved in particular weakness inpayment even though the same issue was
raised in 2009.
b. In order to ensure that HDC achieves the
objectives of its establishment, it is recommended
that parties involved consider the following actions:
i. the management of HDC should create or
review processes, procedures and mechanisms
of implementation for all halal programmes to
ensure that they could be executed efficiently
and effectively as well as protect the interests of
the Government;ii. the management of HDC should comply with all
established financial regulations in order to
have good governance;
iii. MoF should review HDCs status as a
Government company as HDC is not profit-
oriented and requires funds from the
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Government to implement its principal activities;
and
iv. the Ministry of International Trade and Industryshould continuously enhance monitoring on the
distribution of allocations and expenditures
performance as specified in the service
agreement with HDC so that the development
budget is spent according to plan.
24. Technology Park Malaysia Col lege Sdn . Bhd .
a. Technology Park Malaysia College Sdn. Bhd.
(TPMC) was established on 18 August 1998 with a
paid up capital of RM15 million. TPMC is wholly
owned by Technology Park Malaysia Corporation
Sdn. Bhd. (TPM) with the mandate to form a
college. The main activity is to provide a place oflearning for higher education in biotechnology and
biomedical science, engineering as well as
business management. Courses offered are
twinning degree programmes with foreign
universities; diplomas; certificates; and short
courses. TPMC also carries out high qualitytechnical training such as human capital
development and industry skills enhancement
programmes. Audit findings revealed the following:
i. the company's financial performance was
satisfactory with operating profit for 3
consecutive years;
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ii. TPMC activities were in accordance with the
mandate given except that there were not
enough students pursuing studies in the
college; delay in developing the College
Management System (CMS) and the Loan
Fund was used for other purposes; and
iii. the management and corporate governance of
TPMC were generally satisfactory.
b. In order to ensure that TPMC achieves the mainpurpose of its establishment which is providing
learning for higher education, it is recommended
that the management of TPMC considers the
following:
i. take proactive action to ensure that students
graduated are marketable and employable;
ii. review and set marketing strategies to attract
more students as planned; and
iii. increase the number of students pursuing
studies in the college to create a good image
for the college and to help reduce the operating
costs.
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POSTSCRIPT
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POSTSCRIPT
In general, Ministries/Departments/Government
Companies had good plans to implement programmes/
activities/projects. However, in terms of implementation,
there were still several weaknesses that need to be
overcome immediately to ensure that each programme/activity/project is implemented in an efficient, economical
and effective manner to achieve the stated objectives. In
this regard, the following recommendations are made to
overcome the weaknesses from recurring:
a. As audits conducted by the National Audit
Department are based on samples and certain
scopes, Secretary Generals of Ministry/Heads of
Department/Chief Executives should carry out
thorough examination to ascertain whether other
activities have the same weaknesses and thereby
take corrective actions and make improvements. In
relation to this, other than carrying out evaluation oninternal controls, the Internal Audit Unit should carry
out procurement and performance audits on the
management of programmes/activities/projects to
ensure that they are implemented efficiently,
economically and the stated objectives are achieved.
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b. Based on Audit conducted, there were several
weaknesses in the implementation of programmes/
activities/projects due to lack of monitoring/
supervision by responsible parties, insufficient
technical expertise and relying completely on
consultants/contractors, no coordination among
agencies involved as well as internal problems faced
by contractors. These weaknesses caused the
programmes/activities/projects not to be completed
within the stipulated time, unsatisfactory works
quality, increase in cost of programmes/activities/
projects and the Government not g