PRESENTATION PAPER FOR
ECONOMIC CRIME IN ASIA: A GLOBAL PERSPECTIVE
AN INTERNATIONAL CONFERENCE
Dealing With Public Sector Fraud: Enhancing Integrity And Transparency In Government
Financial Management
How National Audit Department plays its role in mitigating fraud and enhances the public
accountability in Government Financial Management System
Tan Sri Dato’ Setia Hj. Ambrin Bin Buang
Auditor General Malaysia
1 October 2008
Fraud and corruption I believe is omnipresent. It is not confine to poor countries. As we are
aware in recent, it has happened in developed countries going by the reports about Enron and
WorldCom in U.S.A, Banco Ambrosiano in Italy, Barrings in UK etc.
Malaysia too is an exception where as a matter of fact fraud can occur in the private
sector as well as the public sector. In reality we have had our own little Enron’s in recent
times. According to police records in 2006 there were 6,921 commercial crime cases amounting
to RM 685 million involving Criminal Breach of Trusts, cheating and cyber crimes. On top of
that, we had 2,892 cases involving falsification, fake currency notes, credit cards and offences
under the copyright Act such as the censorship Act.
As for the Malaysian public sector, suspected fraud cases which was unveiled by the
A.G: reports continue to be a major public concern. These cases are considered ‘suspected’
because under the law fraud has to be proven in court based on proper investigation by the
competent authorities. Until then, these cases can be conveniently classified as mismanagement
which should at least disciplinary actions should be taken by the department heads against the
defendant.
Over the years, the AG Report revealed a string of suspected fraud cases. I remember several
years ago, 4 chimpanzees were brought into the country for the Taiping Zoo falsely declared as
being sourced from a breeding state in Nigeria. However, these animals were actually captured
from the wild jungles which if traded would be a violation of international convention in trade in
endangered species or CITES. In the process, cost in bringing and sending back the animal
would incur public expenditure.
Last year’s AG Report too entertained a number of suspected fraud cases. For instance, the
computerized land registration system which was implemented nationwide about a decade ago
was flawed in terms of its data integrity which could be easily manipulated by unscrupulous
people to undertake land transactions. In fact, police records showed that there were 185 cases
of improper land deals. This occurs because during system implementation, data entries were
not properly verified for their accuracy. There was also a case of misuse of welfare and in a few
states whereby a few dead persons were the beneficiaries continue to receive the welfare. Then,
there was the case of mismanagement of revenue emanating from private quarry operators in one
of the states, which effectively cost the state several hundred thousands of ringgit in revenue all
because the system used was poorly implemented resulting in rampant under declaration of
quarry output.
The 2006 AG Report also caused a stir when the ACA followed up with their own investigation
resulting in several people being hauled to the courts for suspected fraud and corruption in the
procurement of training equipment by youth skill training centers.
In the 2007 AG report among others unveiled cases of possible fraud in the diesel subsidy
scheme meant to help our fisherman.
Enhancing Integrity and transparency
Integrity does not only relate to corruption but also to do the best in performing one’s
responsibilities. It also applies to a person who is incumbent to comply with procedures, rules
and regulation. Even if a person fails to comply with procedures not because of corruption but
because of knowledge he/she is still considered as not having the integrity. Therefore, he should
not fail to comply with rules and regulation. Through confident and belief, one should
demonstrate the level of high integrity. People of integrity think, say, promise, and do things
coincidently. With their unshakable character, good reputation, reliable and responsible they earn
our trust and respect. They make tasks become duties and at workplace, they don't waste time but
gladly carry out their responsibilities; they don't engage in destructive and negative gossip, but
build self confidence, teamwork, and morale; they don't abuse their privileges and position, but
respect their employer's property and reputation.
Transparency is the right of the stakeholders to know the outcome of the government programs
and projects. Stakeholders are the public. They are the taxpayers and non-taxpayers who not only
wanted to know the result of the programs but also to benefit from them. Government gained its
mandate to carry out programs and projects that are useful for the public such as hospitals,
schools, universities, factories and infrastructures such as airport and highways for the benefit of
the public. The financial as well as the progress reports of the programs are tools to show how
transparent are our government.
Enhancing Integrity and transparency Involve several parties:
1)
Departmental heads/controlling officers
·
To ensure that financial management rules and regulation are strictly adhered to by their
subordinates since they have been designed to ensure accountability and prevent fraud.
·
This can be done by:
i) constant supervision of staffs involved in day-to-day financial management to check
whether they are diligent and competent
ii) effective monitoring through establish mechanisms such as the JPKA (Committee on
Financial Management and Account) which is mandated to convene four times a year to discuss
audit and other financial issues.
iii) to conduct spot checks on a regular basis
iv) to provide continuous staff training to improve their competency in financial management.
v) to report to ACA or police a suspected fraud and corruption cases.
vi) to take disciplinary actions on staff responsible for mismanagement or fraud. For e.g.
imposing surcharge.
2)
Roles of Internal Auditors
Most Government departments and agencies have internal audit divisions which now are
staffed mainly by cadre auditors from my department.
Internal Audit can play an effective role in combating fraud provided they are competent
and have the enthusiastic support of their department or agency head.
They should keep a sharp eye on whether effective internal control is steadfastly
obscured by the departmental staff and investigate every complaint about possible fraud within
the organizations. Their report should contain precise recommendations pertaining to actions
that can be taken against the suspects. Thus, there internal auditors who have a working
knowledge of fraud auditing will have an advantage.
In cases where investigation conducted revealed that there was an overwhelming
evidence of a fraud occurring in the organization they should not hesitate to report to their
departmental head or to the Auditor General.
3)
Role of External Auditors From The National Audit Department
As mentioned earlier, over the year the AG reports contained cases of possible fraud
which insist further investigation for purpose of presentation by the appropriate authorities.
For sure, we will never know the extent of fraud in the public sector since the auditing
done is based on sampling.
However, the NAD has recently taken several steps to enhance its auditing capacity in
tandem with the Government polity to enhance integrity and accountability in the public
sector. With an additional 500 staff approved to us recently, we can now do more auditing and
this represent another significant step for us to play our role in combating fraud and corruption in
the public sector. We have recently introduced the rating system for financial management in the
public sector based on their accountability index in which a comprehensive approach is taken to
audit every major aspect of financial or management, and in the process, we hope to detect
irregularities and discrepancies which can be tell-talk signs of fraud.
The 2007 Auditor General’s report shows the following:
Star Rating for Federal Government
Rating/ Numbers of Agencies
UnAgencies
Excellent
Satisfactory
satisfactory
(4 Stars)
Federal Ministries
Federal Depts
Federal Statutory
Bodies
Total
Good
(3 Stars)
(2 Stars)
1
5
22
20
5
6
(1 Star)
-
2
22
2
-
8
64
13
Star Rating for State Governments
Rating/ Numbers of Agencies
UnAgencies
Excellent
Satisfactory
satisfactory
(4 Stars)
State Treasury
SEDC
Islamic Councils
State Government
Departments
State Statutory
Bodies
Local Authorities
TOTAL
Good
(3 Stars)
(2 Stars)
1
-
13
9
7
3
6
(1 Star)
-
1
33
28
-
-
3
1
2
12
77
10
48
-
NAD has also published the book on ‘Excellence in Financial Management’. It is the main
reference to make sure financial management is being done according to the rules and
regulations. This book explains the financial management elements in the public sector with
references to the latest financial circulars and treasury instructions.
With the additional staff too, we can mount more performance audits for focusing on weakness
in the implementation of Government programs and projects such as severe delays in
completion, hefty cost incurrence’s and shoddy workmanship and the use of sub-standard
materials which could indicate the existence of fraud.
As an additional measure, we shall also step up our spot audit through surprise checks in other
agencies not covered by our star-rating or performance which we hope will keep the agencies on
their toes all the times in a bid to check possible fraud.
It must be mentioned, however there to be effective in fraud prevention intensified
auditing has to be followed up by firm actions against the offenders. When appropriate, so that a
firm messages is conveyed that fraud does not pay. I do believe that we already have adequate
laws and regulations to deal with fraud and corruptions. In the public sector so therefore to be
effective then it must be in the one of enforcement that there is a need for improvement.
4)
The role of media
We should also acknowledge the role of the media in enhancing integrity and
transparency for exposing financial lapses and shortcomings in government financial
management especially those cases which have been extensively investigated, sometimes to the
detriment of the members of administration and senior government officials. The wide interest it
generated will instill high public awareness abort integrity and transparency in the public service.
Summary
In summary fraud cases in the Malaysian public sector involved false claims of work done,
goods purchase or non-delivery of services. In the realm of government procurement, fraud can
be associated with attempts to avoid calling tender by “pecah kecil” or subdividing purchases,
unqualified bidder given contracts, and manipulating of ICT Systems (land scam, misuse of local
orders under the eSPKB).
Generally, the government has sufficient laws and regulations enabling the departments/agencies
to take actions against those wrongdoers. Among others, Government had issued Financial
Procedure Act 1957, Treasury Instructions, Treasury Circulars and General Orders. To ensure
that all the laws and regulations are adhered to, I suggest that the heads of department/agency
ensure that the element SIKAP exists in his/her department. SIKAP means:
·
S- SUPERVISION – close supervision given to the subordinates.
·
I – INTEREST – every officer must have interest in their work.
·
K – KNOWLEDGE – every officer must have sufficient knowledge in their field of work.
·
A- ATTITUDE – every officer must have the right attitude in performing their duties. A
culture that values honesty, trustworthy and efficiency must be instilled.
·
P- PROCEDURES - proper procedures should be established for each activity and
monitored to ensure that they are complied with.
For serious cases, I hope those people who are found to be directly negligent in their work that
concern money should not be “rewarded” by giving them excellent services certificate, very high
marks in their annual performance evaluations report as well as awards and titles. Mitigating
fraud and financial mismanagement is an ongoing process where National Audit Department as
well as other government agencies such as the accountant general and treasury has been working
hard to ensure financial management and accountability chain is in place as what the laws have
prescribed us to do maintaining public trust. While total elimination of fraud and corruptions is
impossible, minimizing the risks through proper hiring of staff, training, and deployment of
procedures and internal controls have helped reduce fraud cases and increased management’s
awareness regarding red flags or warning signs before major damaging consequences happens.
Malaysian Government has been in constant effort to promote awareness on accountability,
integrity and transparency among the public servants in order to shoulder the trust that the public
have entrusted upon us. The better we could cope with fraud the better we are in improving the
financial management for our nation.