AG Report Reveals How Poor Finance Management Has Cost The Government Millions Of Ringgit

Millions of ringgit have been dished out due to poor management, mishaps and technical errors.

Cover image via The Star

Yesterday, 23 November, the Finance Ministry released the Feedback Report on the Third Series of the 2014 Auditor-General's Report.

It revealed some shocking details from the issues raised by the Auditor General in the Auditor General's Report.

Auditor-General Tan Sri Ambrin Buan

Image via Sinar Harian

A total of 268 recommendations were submitted in the Third Series of the 2014 Auditor-General’s Report to help the federal government, its statutory bodies and state governments to improve and rectify their weaknesses.

Auditor-General Tan Sri Ambrin Buang said they comprised 102 recommendation for the federal government, federal statutory bodies (32) and state governments (134). The audit covered programme, construction, maintenance, acquisition, revenue management and company management, he said in a statement issued here today.

Ambrin said generally, the National Audit Department found the agency financial management performance level for 2014 still good with 172 ministries, departments and agencies obtaining the “Very Good” rating (four stars), compared with 194 in 2013 and 143 in 2012.

Here are some of the key highlights from the recently released Feedback Report from the on the Third Series of the 2014 Auditor-General's Report:

Third Series of the 2014 Auditor-General’s Report

Image via The Rakyat Post

1. The Royal Malaysian Customs Department's poor management of duty taxes, warehousing and control unit has cost the government millions of ringgit

Royal Malaysian Customs Department

Image via Royal Malaysian Customs Department

The Auditor General (AG) thumbed down the Customs Department as technical errors in completely built up (CBU) vehicles assessment left almost RM15 million in taxes uncollected.

The AG Report 2014 series 3 found that the Malaysian Association of Malay Vehicle Importers and Traders (Pekema) did not apply for time extension to keep their unsold imported vehicles more than 36 months without being taxed.

"As at Dec 31, 2014, estimated duty from those unsold imported vehicles amounted to RM12.65 million," the Report said of the bulk of the amount.

Furthermore, 213 K1 forms from an audit sample of 3,931 forms contain errors that resulted in under-collection of taxes amounting to RM1.29 million.

However, the same mistakes have also led to an over-collection of RM499,296.

The Report also noted that seven audited licensed warehouses with 725 vehicles in total with an estimated duty of RM38.22 million were uninsured for fire and theft.

2. The Foreign Ministry has spent a grand sum of RM14.7 million to refurbish two vacant annexes that are meant to house Malaysian representatives at the Malaysian embassy in Washington DC.

The buildings remain unoccupied even after the costly renovation.

The two buildings bought by the Malaysian government remains vacant event after the renovation

Image via The Malaysian Insider

The Auditor General’s report (third series 2014) revealed that the two buildings, Annex 1 and 2, had been bought in 1979 and 1984 at a cost of RM1.45mil and RM1.05mil respectively.

However, they have been vacant since 2002 when the Malaysian mission in the United States moved to the New Chancery building.

The audit classified the buildings as wastage, seeing as the Malaysian government still had to fork out between US$2,000 to US$3,000 a month for utilities and maintenance.

The defect liability period for the buildings had expired in June 29, 2013.

3. A mishap in devaluation of land value for the National Defense Education Center Development (NDEC) Project causes the government to incur losses amounting to RM26.87 million

The AG's investigations, conducted in May and July, found three main weaknesses of the project, which in principle the Cabinet agreed in 1997 be carried out by Awan Megah Sdn. Bhd. (AMSB) on Mindef's land covering 221 acres in Templar Park, Selangor.

The weaknesses were identified as follows:
» The project was delayed for 282 days as of July 29 due to the contractor's poor performance.
» A devaluation of land value caused the Government to bear the project cost at RM26.87 million.
» AMSB was late in submitting its Performance Bond of RM4.95 million.

The NDEC comprises the the Armed Forces Staff College (MAFSC) and the Armed Forces Defence College (MAFDC) and its objective is to provide a training facility for the military's three arms; Air Force, Navy and Army to the highest military field level.

4. The AG has expressed doubts over the continuity of PNSB Development Sdn Bhd (PDSB) owned by Permodalan Negeri Selangor Bhd (PNSB) that has suffered losses up to RM10.74 million due to poor management

Image via The Rakyat Post

PDSB, a wholly owned subsidiary of Permodalan Negeri Selangor Bhd (PNSB) with property development as its main activity, was established on Oct 30 1993 under the Companies Act 1965 with an authorised and paid-up capital of RM10 million.

The report stated that the loss before tax increased drastically by RM19.94 million (621.2%) in 2014 as compared to 2013.

Despite having started 20 years ago in 1995, the overall physical performance of the Housing Development Joint Venture Project in the Petaling District was only 44.2% as of May 2015, and there was a delay in completion of certain category of development between 167 days and 998 days.

Meanwhile, a total of 506 Phase 1 Alam Perdana Project house buyers have yet to settle the progressive payments of RM11.99 million, despite PDSB having spent RM41.59 million on repairs.

The audit report recommends that PDSB, in collaboration with PNSB, revaluate PDSB’s original incorporation objectives of developing all PNSB’s property development projects since only two projects are in the process of implementation from the year 2012 to 2015.

5. Flood equipment for the flood mitigation projects (FMP), worth more than RM6 million has not been made used of, due to technical problems and installation

Pengkalan Chepa, Kota Bahru, December 2014 floods

Image via The Telegraph

The FMPs carried out under 10MP (2010-2015) cost a total of RM3.35 billion in public funds.

One weakness, the report said, was that Kelantan and Terengganu, which suffer the highest losses due to floods, were not given priority in FMPs.

The report said there were components that did not comply with specifications or were of low quality.

They include the Supervisory Control And Data Acquisition (SCADA) system worth RM1.44 million for Phase 2 of the Sibu FMP, which was not used due to antenna installation problems.

“The SCADA system worth RM4.86 million for Phase 1 of the Kelantan River FMP could not be used due to technical problems,” the report said.

6. The Property Management Division (PMD)'s oversight in not deducting salaries of 39 civil servants under the civil servants quarter program has cost the government RM811,326

According to the audit carried between January and May 2015, the report also found a total of 575 units of unoccupied quarters were not promptly allocated after completion of maintenance work.

"RM3.68mil in rent arrears of 607 ineligible tenants have also been identified as at April 2015," said the third series of the report, which was released in Dewan Rakyat on Monday.

Incomplete repair works of quarters by the Public Works Department (PWD) and Putrajaya Holdings Sdn Bhd (PJH) and unfulfilled responsibilities of the appointed maintenance contractors were also among the reasons.

"RM88,787 worth in rent arrears were also incurred by tenants from non-governmental organisations," it said.

7. Due to implementation failure, a rice subsidiary programme intended for low-income earners, went to foreigners, food stalls and restaurants instead

“Of the 83 grocery shops visited, 38 did not have subsidised rice in stock because they did not receive enough supply to meet demand.

“Also of 86 consumers who responded, 54 were Malaysians, while the rest were those who were not eligible for subsidised rice.

“They consist of foreigners from Bangladesh, Nepal, Indonesia, Pakistan and Philippines, as well as restaurant operators who use the rice as pet food,” according to the report's third series 2014.

The audit report also found several other weaknesses with the rice subsidy programme, which is now scrapped, including quotas given to wholesalers with expired licences, and wholesalers who failed to carry out wholesaling activities.

8. 388 schools out of 1,452 schools in Sarawak are in very poor condition, with most having "serious defects" that are "risky to use"

SK Long Sukang in Lawas, Sarawak

Image via Impian Malaysia

The poor state of these schools was despite the A-G giving the thumbs up to on-going and completed repair and renovations projects.

The infrastructure of 124 schools "had serious defects that require immediate and urgent repair".

These defects include decayed wooden structures, obsolete steel structures, damaged concrete structures, soil erosion, damaged sewage systems, termite infestations, damaged walkways, leaked roofs and ceilings, faulty drains and obsolete electrical wiring systems. No other state was singled out for poor infrastructure in the report.

There are 1,265 primary and 187 secondary schools in Sarawak.

9. Delay in building the Sarawak International Medical Centre (SIMC), has hiked up the development cost from RM374.12 million in 2002 to an estimated amount of RM534.38 million now

The A-G traced the project from its announcement from 1998, development cost of RM374.12mil approved in 2002, through its various delays and cost revisions.

"Delay in the completion of SIMC project caused the escalation of the cost to RM534.38mil," said the AG report released on Monday.

Initially planned as an integrated specialties medical centre for research, public and private healthcare, the completed structure, left vacant for a number of years in the 2000s, was eventually turned into the cardiology wing of the Sarawak General Hospital in 2010.

10. The government's debt has increased by RM42.97 billion last year, 2014, compared to the previous year, 2013

It now stands at 54.47% of the gross domestic product.

The internal debt amounted to RM566.052 billion (97.1%) while foreign debt totaled RM16.776 billion (2.9%), the report said.

Generally, public debt increased to RM582.828bil at the end of 2014 compared to RM539.858bil at the end of 2013.

Public debts comprised internal loans amounting to RM566.052bil and foreign debts worth RM16.776bil.

In addressing the decline of performance by the local ministries that has cost the government millions of ringgit, the Public Accounts Committee (PAC) will be calling in six senior officials from six different ministries to explain the reasons behind the costly poor management and performance

Auditor-General Tan Sri Ambrin Buang

Image via Malay Mail Online

PAC chairman Datuk Hasan Arifin said the committee was dissatisfied with the general decline in financial management by ministries, government departments, agencies and statutory bodies.

“The number of ministries, federal and state departments, including statutory bodies, that scored four-star ratings dropped to 60 last year, compared to 68 in 2013.

Agriculture and Agro-based Resources Ministry will be hauled up over its management of subsidies for ST15 and S15% rice types, while the Rural and Regional Development Ministry will be called to explain the Orang Asli socioeconomic development program.

The Education Ministry will be facing the PAC over its management of projects to build secondary-level religious schools and other related facilities in Sarawak, while the Defence Ministry will be hauled up for losing close to RM27mil over delays in the National Defence Education Centre (Puspahanas) project.

The Works Ministry will be jointly called with the Health Ministry to explain delays in the upgrading of Hospital Sultanah Nora Ismail in Batu Pahat, Johor, and the Home Ministry will be called to explain poor management of the National Anti-Drug Agency quarters.

If you wondering how the country's finances fared last year, read this:

Talking about the country's finances, Malaysia recently scored a 'D' in Transparency International's Global Corruption Defense Survey:

Nevertheless, read why World Economic Forum (WEF) ranked Malaysia as the world's 8th most efficient government:

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