Keynote Speech By Tan Sri Dato' Setia Haji Ambrin bin Buang Auditor General of Malaysia 40th Meeting of the Representatives of Internal Audit Services of United Nations Organisations, Multilateral Financial Institutions and Associated Intergovernmental Organisations. Prince Hotel and Residence Kuala Lumpur, 1 October 2009 Mr. Kamal Malhotra United Nations Resident Coordinator for Malaysia and UNDP Resident Representative for Malaysia, Singapore and Brunei Darussalam Mr. Egbert C. Kaltenbach Director of the UNDP and Chairperson of RIAS Distinguished Delegates, Ladies and Gentlemen A very good morning to you all First and foremost, allow me to record my appreciation to the Office of Audit and Investigations, UNDP for your gracious invitation to have me to address you this morning on the 40th Meeting of the Representatives of Internal Audit Services of United Nations Organisations, Multilateral Financial Institutions and Associated Intergovernmental Organisations. It is indeed a pleasure to welcome such a distinguished group like yourselves to Malaysia. I am happy that I have had the opportunity to spend time with you last evening at the welcome dinner, which I immensely enjoyed. Internal Audit is a critical function of any organisation; providing a systematic, disciplined approach to evaluating and improving the effectiveness of risk management, control, and governance processes. As such, it is thus heartening to note that all UN agencies and the Multilateral Banks are coming together to harmonize practices and achieve synergy, in addition to discussing and exchanging global best practises in order to innovate and add value to our profession and respective organisations. We in Malaysia, and the National Audit Department (NAD) in particular are always keen to learn and adopt best practices mainly because the NAD supply the bulk of internal auditors in Malaysian government ministries, departments and agencies. Ladies and Gentlemen, I would like to take this opportunity to apprise you on recent developments in auditing in the Malaysian public sector. Being the legally appointed body responsible to audit all the government ministries, departments and agencies as required by the constitutional mandate, the NAD’s role is to promote public accountability through impartial and objective examination, review and reporting on accounts and operations of government. We audit government operations and provide information that helps Parliament hold the government to account for its stewardship of public funds. I am happy to mention here that the Malaysian government has responded positively to growing public demand for greater accountability and transparency in the public service by strengthening the staffing of the NAD as well as the various internal audit divisions of ministries, departments and agencies. The various positions in the Internal Audit Divisions (IADs) have been made cadre posts, whereby the NAD is empowered to supply the bodies and plan for their career development as well as training needs. Majority of the heads of IAD posts have been upgraded, meaning senior and more experienced personnel are now manning the IAD, in the hope that they can play a more effective role than before. As for the NAD, last year with a staff of 2,100, we conducted financial audits on 447 financial statements of the Federal and States Governments, Federal and State Statutory Bodies, Local Governments and Islamic Religious Councils. We are also entrusted to audit projects funded by United Nations organisations, World Bank and so forth. In addition, we carry out 278 compliance audits based on the newly established Accountability Index (AI) and 160 performance audits on the government ministries, department and agencies at the Federal and States levels. For the record, we had conducted performance audits on 496 government companies starting from 2004. As with many other countries, the NAD discharges its constitutional duty to its major stakeholders by providing timely, independent and objective reports. Parliament, the government and the public service are the guardians of the public funds entrusted to them for delivering programs and services to benefit the people. A key element of the people’s confidence in our democratic institutions is their belief that public funds are being spent wisely and effectively. By helping MPs to discharge their duty as our representatives and assisting the government in the management of public funds, the National Audit Department (NAD) therefore plays an important role in the functioning of our parliamentary system. It is our duty to monitor that the management of, and accounting for, public funds are done in an economic, efficient and effective manner. Our reports are examined by the Public Accounts Committee and the Committee holds hearings throughout the year, which I attend, along with my audit team and senior public servants from the audited departments. After the hearings, the Committee may report and make recommendations to Parliament, and the audited departments are generally expected to report back to the Committee on what they have done in response to our recommendations. Distinguished Guests, Ladies and Gentlemen The Auditor – General of Malaysia is given a very wide mandate—one that is becoming ever more complex as government changes its structures and practices to deliver programs and services to the people more expeditiously and efficiently. The goal for the NAD of Malaysia is to become more stakeholder focused and to deliver value in the audit services we provide. To achieve this goal, I would like to share with you our priorities over the next several years which are as follows: · Performance auditing and special investigations will become the most important part of our work in the coming years. The selection of performance audits in the coming years will take into account the government current economic stimulus packages and aligning the audits to the recent announcement of several National Key Result Areas (NKRAs) by the government. For your information, the Malaysian government has identified 6 NKRAs i.e enhanced public safety, war on corruption, enhanced robust education systems, improving low income household, improving rural basic infrastructure and improving urban public transportation in line with the One Malaysia, People First, Performance Now concept where outcome and impact of government programs in these areas will be evaluated on a continuous basis. · In line also with greater emphasis on performance in the public sector, the NAD will pay greater attention to the performance of government companies. The audits normally concentrate on the corporate strategic planning, corporate governance and management of resources/assets, finances and activities. We observe that some of these companies have been in existence for so many years but because of weak corporate governance, their performance is at best mediocre and sometimes burdensome to the government. · We have recently introduced the Accountability Index (AI) on Financial Management which was first reported in 2007 Auditor – General Report. The rationale of introducing the AI is to respond to the concern of Government leaders over the instances of non-compliance and internal control weakness that were repeatedly mentioned in the annual audit reports. As an audit innovation, the AI seek to provide an objective, analytical, comprehensive and transparent assessment of the financial management compliance of government ministries, departments and agencies where their overall financial management performance is star- rated from weak to excellent. We are pleased to note that the results of the 2008 AI assessment indicated a marked improvement with 100% more Federal and State ministries and departments obtaining excellent financial management compliance as compared to 10 ministries and departments in 2007. · We also intend to intensify our work on a few areas that we have recently embarked for example, environmental and water management auditing. These are issues which are so close to the lives of our people. Specialised units are established at the NAD to conduct the audits and consultants are enlisted to assist in the performance of the audits. · Continuous staff professional training to ensure that auditing standards of the highest quality are maintained at all times is another priority. The National Audit Academy has been given the responsibility of identifying training needs for new recruits and also for career development. Apart from the courses conducted in – house, audit officers have also been given opportunities to attend courses conducted by professional accounting and auditing bodies, ASOSAI and INTOSAI. · The shift from manual to computer audit would certainly lead to more effective use of human resources. As such, in order to maintain credibility and professionalism, the NAD has to embark on latest techniques of auditing. Serious efforts have been taken to develop and modify computer audit software packages to suit the needs of the NAD. This software packages are being developed and tested with the assistance of specially trained staff. Ladies & Gentlemen, The role of internal audit as a cornerstone of corporate governance whether in the private or public sector cannot be overemphasized. The International Standards for the Professional Practice of Internal Auditing (Standards) acknowledge the close link between corporate governance and the practice of internal auditing, suggesting the work related to corporate governance is fundamental to the basic practice and performance of the internal auditing function. When we speak of corporate governance, it is essential to look at performance beyond conformance; at substance over form meaning using the governance arrangements to meet the stakeholders’ expectations of honesty and accountability and to enhance the overall performance to deliver value for the shareholders. Internal auditors as the in – house regulator must be particularly vigilant about form undermining substance. Boards are often more focused on conformance, concentrating on box ticking exercise whilst ignoring the spirit and substance of laws, rules and codes. This is often seen for example in the appointment of independent directors where often such directors, while outwardly appearing independent based on the legal criteria of relationship, are often beholden to the organisation or its chief executive, thus, interfering with their ability to exercise independence management or to act in the best interest of the stakeholders. This is not to say that conformance is irrelevant but mere conformance is inadequate. Indeed organisations need to achieve both conformance and performance and not to trade one off against the other. An effective committee is an indication of best practice and reinforces the independence and objectivity of the internal audit units. Internal auditors must ensure the effectiveness of the audit committee which is an integral part of an effective audit function. The importance of the committee is one of the issues raised in 2007 Auditor – General’s Report relating to the audit study on the effectiveness of Internal Audit Units among ministries and departments at the Federal and States levels. Our study revealed that audit committees were not established and some did not function effectively. Though Audit Committees are a recent development in the public sector, their very presence reflects an increasing emphasis on accountability and financial performance. As you are all aware, the impact of the global economic crisis has been felt across a broad range of industries as well as professions and auditing profession is no exception. The economic downturn is challenging us to continue delivering value and help the auditees or clients to meet their objectives, but under tighter resource constraints. I believe that the internal auditors can help during this period by using an integrated approach to governance, risk and compliance (GRC) to develop the right control environment and provide reasonable assurance. By strategically integrating GRC, the organisation can gain the ability to manage risks more effectively and create competitive advantage. Distinguished Delegates, Ladies & Gentlemen, Let me share with you our connections with the internal auditors in Malaysia. I am convinced that we can better leverage our collective efforts and expertise as a community through sharing knowledge and learning from one another. I believe it is important that communication flow freely between the NAD and the internal audit units. As such, the NAD has close coordination with the Internal Audit Units in the preparation of programmes and exchanging of audit findings. Internal auditors are our strategic partners and making full use of their work will reduce the extent of audit works and avoid duplication of work. The NAD assists the internal audit units on the capacity building. Training programmes, seminars and symposium are conducted from time to time at the National Audit Academy (NAA) to enhance the knowledge and practical skills of internal auditors as well as to share experience on auditing. The NAA is about 4 years old and already it is capable of conducting performance auditing and ICT auditing courses for international participants besides capacity building courses for our own auditors. Every year we conduct two such courses under the Malaysian Technical Cooperation Programmes. Apart from that, the NAD also seconds experienced senior audit staff to head the Internal Audit Units for specified terms and recently the government has created 200 new posts for the Internal Audit Units to enable them to conduct the audits more efficiently and effectively. I am convinced that with the present coordination and assistance from us, it is anticipated that greater reliance on internal audit work is imminent and this will definitely provide an additional oversight and governance. Distinguished Guests, As a member of International Organization for Supreme Audit Institutions (INTOSAI), I am happy to note that INTOSAI and the United Nations have created positive relationship between them whereby membership to INTOSAI is granted to countries who are members of the UN or one of its specialized agencies. INTOSAI/UN seminars have been regularly organised and the UN has also contributed through its expertise in the INTOSAI triennial congress. All these joint initiatives are indicative of the UN’s quest for finding options, methods and ideas that can promote audit as a tool for good governance and socio-economic development. As I mentioned earlier, we audits projects funded by United Nations organisations. In the case of UNDP, for the year 2008 we audited seven UNDP projects and one project from United Nation Population Fund as compared to 21 projects in 2007. We conduct transactions – based and compliance audits. Among the findings include delays in the submission of completion reports, delays in convening meetings, inadequacies of financial operation controls and so forth. The risks of delays will definitely affect the implementation of the project as well as the time frame and budget. Ladies & Gentlemen, I envisage that there are certain areas where enhanced cooperation between the NAD and Representatives of Internal Audit Services would be mutually beneficial such as developing new audit methodologies and approaches as well as assisting in the conduct of performance auditing through training courses and secondment programmes. We welcome proposals for interregional technical cooperation and capacity building and we are looking for opportunities towards expanded partnerships. To conclude, let me reinterate that Internal audit services performs an invaluable and critical function that is providing the element of assurance to stakeholders, in your case, for programme countries and for donors as well. Therefore, an effective service depends on the capacity and ability to adapt to the current developments including in the field of information technology and multimedia field which provided a new approach to manage our tasks. I am once again delighted to welcome all of you to Kuala Lumpur and I do hope you have the chance to stay back after your meeting to enjoy our beautiful city. I wish you all a productive discussion over the next two days, and I have no doubt that given the esteemed group gathered here today, that your agenda will be successfully achieved. Thank you for your attention.