4th ASOSAI SYMPOSIUM IN ISLAMABAD, PAKISTAN
14 OCTOBER 2009
The Role Of SAI Of Malaysia In Enhancing The Effectiveness
Of Public Expenditure
Prepared by
SAI of Malaysia
INTRODUCTION
In consonance with its Constitutional Mandate, the SAI of Malaysia provides its yearly report,
Report of the Auditor – General, to Parliament and the respective State Legislative Assembly of
the 13 states in the Federation of Malaysia. The Auditor - General’s Report consists of:
i.
Accounts of the Federal Government and the respective State Governments;
ii. Status of financial management of the Federal Government and respective State Governments,
statutory bodies and agencies;
iii. Status of impact and effectiveness of government programmes, projects and activities of the
Federal, State and Local Governments.
These reports are deliberated by the Public Accounts Committee of the Federal Government and
the respective State Governments in which the Auditor – General or his representatives serve as
an ex – officio member.
ROLE OF THE SAI OF MALAYSIA
SAI of Malaysia has a clear mandate to promote good governance within government entities in
Malaysia. It’s role is to track, monitor and report government spending on the programmes and
activities carried out by the ministries, departments and agencies to ensure that the government
expenditure be based on the value for money principle focusing on the aspect of economy,
efficiency and effectiveness. The value for money principle require diligent planning using
latest information on the cost, specification, technology, best practice and so forth. In response
to this, SAI of Malaysia has to show that it is able to do its job in a cost effective and responsible
manner in so doing providing real value.
Being part of the checks and balances in the management of public finances, a force for
improved public financial management and accountability, for preventing corruption and
mismanagement of public funds and for increasing confidence in the public sector, SAI of
Malaysia has undertaken several initiatives to enhance its oversight roles in public expenditure
as follows:

Improve the Timeliness of Auditing and Reporting
Accountability delayed is accountability denied. The objective of auditing and reporting
is to detect anomalies, if any, and by doing so, ensure cost – efficiency and integrity in
public expenditure. Indirectly, the objective is also to curb malfeasance in public
expenditure and thus ensure corruption free and a result – based outcome of public
finance.
Over the past two years, SAI of Malaysia has put an enormous effort to ensure that the
audit reports were brought up to date. The implementation of the Government
Financial and Management Accounting System (GFMAS) has enabled the auditing of the
financial statements to be completed within three months after the receipt of the final
financial statements instead of four months deadline. This is a considerable turnaround
compared to six years ago when delays in the submission of the financial statements
were common issues among several agencies and this has affected the reporting
process.
Input information on expenditure and costs is crucial to decision making and effective
expenditure control. Accordingly, SAI of Malaysia plays an important role in turning
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input data into information. In response to the needs of the users, beginning 2007 audit
reports, the reporting practice has been changed by issuing a separate report for the
audits of financial statements and audits of programmes and activities for the Federal,
State and Federal Statutory Bodies. These reports are available to the public once tabled
in parliament.

Conduct Effective Financial Audits
The effectiveness of the financial audits is important to enhance the controls on public
expenditure. SAI of Malaysia carried out regular financial audits encompassing financial
statement and compliance audits with a view to attesting the financial statements and
verifying that expenditure conforms to the relevant provisions of the laws and
regulations as well as other instructions pertaining to the entities being audited.
Consistent reviews are conducted on government expenditure on all ministries such as
health, education and social developments. Some of the findings highlighted in the
financial audits include inadequate accounting systems, poor budgetary and expenditure
controls and non-compliance issues. SAI of Malaysia has requested auditees to improve
and upgrade their financial systems and controls.
The compliance audits focus on several key financial management elements of
organisational management, budget, revenue, expenditure, management of trust funds,
assets and inventories, investments, loans and financial statements. In 2008, the
auditors involved with the compliance audits are given further value-adding
responsibilities with the introduction of Accountability Index (AI) to assess the extent of
financial management compliance among ministries, departments and agencies.
Basically, the AI provides valuable information on the auditee’s financial management
performance and identifies control improvements. This is done by identifying the
problem areas, either as an inadequate control design or as inadequate implementation
of controls. As a result of this initiative, the number of compliance audits has increased
significantly. Annually, an average of 73 mandatory agencies and 140 rotational
agencies at the Federal and State levels are being audited.

Increased Focus on Performance Audits
Performance audits serve as a good mechanism in evaluating operating performance in
the budget execution process as the audits are concerned with the aspects of economy,
efficiency and effectiveness of government expenditures or spending plans.
Performance auditing in Malaysia began in 1978 and over the years SAI of Malaysia has
developed the depth of expertise and enhanced our capability to conduct such audits
with a value – adding impact. Performance audit standards are now well established and
the approach is in line with international trends.
Every year, SAI of Malaysia conducts an average of 75 performance audits concentrating
on important subjects such as public sector governance, computerisation projects, socioeconomic projects and so forth. The questions of the audit normally involve how much
do the programmes/activities cost, how were they financed, what was achieved and
what were the processes followed in achieving the outcome as well as assessing the
impacts that may provide useful feedback and corrective mechanism in subsequent
planning cycles. Some of the common findings of Performance Audits include financial
irregularities, improper implementations of programmes/projects caused by inability of
contractors to complete the project according to the specifications, time and quality as
well as weak monitoring of the projects. As a result, it has caused delays in completing
the programmes and projects, increase in programmes/projects’ costs and additional
costs incurred for works maintenance on the defects.
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In addition to the performance audits on government ministries, departments and
agencies, SAI of Malaysia also conduct performance audits on government linked
companies. In 2004, SAI of Malaysia was given the mandate to audit 496 companies that
receive more than 50% equity/grants/loans from the government. Until 2008, more
than 100 government linked companies have been audited and from our analysis, the
most common weaknesses found in the audits pertain to financial management, asset
management and corporate governance. With the creation of specific Government Audit
Units, SAI of Malaysia will increase the number of companies to be audited.

Venture into New Specialisations
Consistent with the critical importance of environmental protection and related matters
within the country and global trend among Supreme Audit Institutions, we venture into
emergent areas of performance audits such as environmental and water management.
Statistics showed that the total expenditure on environment and water quality
monitoring has increased tremendously. Since environment and water issues have
increasingly been on the agenda at international level, SAI of Malaysia has established a
separate unit each on environmental audit and water management audit.
Though environmental audit is relatively new in Malaysia, our audits indicated
significant findings relating to non – conformance or weak implementation of rules and
regulations, poor enforcement, lack of monitoring as well as the ineffectiveness of the
measures taken to conserve the environment. And through the audits of water
management, SAI of Malaysia is able to identify millions of cost savings to the
government.

Increased Stakeholders’ Interactions
Stakeholders’ interactions are regularly organized to facilitate strategic discussions on
the effectiveness of public expenditure. SAI of Malaysia is frequently consulted on the
financial procedures and other matters which would be required for effective public
expenditure delivery service at the periodic cabinet meetings and round table
discussions at the Federal and State level. In these sessions too, audit outcomes and
developments are presented and discussed to ensure appropriate actions are taken.
Generally, the audit works have command acceptability from the stakeholders. This can
be seen from the recent Malaysians Cabinet directives to all Controlling Officers to take
immediate actions on the audit issues raised for public knowledge. There have been
cases of auditee revising their systems and issuing new directives to tighten their
systems arising from audit recommendations. In addition, SAI of Malaysia is also
requested to report annually as to whether it is satisfied with the follow – up actions by
auditees raised in the previous years’ audit reports.

Close Working Relationship with Internal Auditors
Internal audit activity has become an essential internal assurance mechanism in public
financial controls and tool for monitoring and evaluating managerial activities. Both the
institution and the public sector Internal Audit Units have established professional
working relationship by effectively coordinating the audit activities to ensure that public
spending is within budgetary provisions, disbursement comply with specified
procedures, provides for timely reconciliation of accounts and effective system for
managing and accounting physical and financial assets. To ensure the internal audit
units are able to undertake the audits effectively and competently, all the posts of chief
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internal auditor and other senior internal audit posts are filled by experienced and
knowledgeable officers seconded from the Institution.

Providing Advisory and Consultancy Services
SAI of Malaysia also offers advisory, technical guidance and consultancy services on
financial management and project management at the specific request of the auditee.
However, in doing so, the auditors always maintained their objectivity and not assume
the management responsibility. Training courses in accounting field is frequently
conducted by the National Audit Academy and these courses are open to the various
ministries, departments and agencies to strengthen financial management and control
and improve standards of accountability in handling public funds.

Enhancing Audit Capability
SAI of Malaysia has always endeavoured to improve the quality of audits and assists to
cultivate the adding value while improving the level of stakeholder satisfaction with our
services. This is evident through the various efforts undertaken by the department such
as follows:

Issuance of Audit Guidelines and Best Practices on Financial Management to improve
the effectiveness of financial management of government entities;

SAI of Malaysia has recently obtained the MS ISO 2001:2008 certifications for the audit
of the Financial Statements and Financial Management based on AI of the Federal
Government and Statutory Bodies as well as the States Government to ensure audit
quality assurance.

In its effort to reinforce the competence of auditors to carry out their audits, continuous
training both in house and overseas is provided to enhance their competencies in
financial and technical areas. Efforts will be directed towards the secondment
programmes for training purposes with private auditing firms to further enhance the
Institution capabilities and encourage cross – fertilization of experience and skills.
ROLE OF OTHER GOVERNANCE ENABLERS
SAI of Malaysia cannot function in isolation to enhance the effectiveness of government public
expenditure and delivery service. It is important to mention the support of appropriate
governance enablers that help to facilitate the auditor’s role such as the government, the Public
Accounts Committees and the auditees.

The Government
In line with Malaysian public aspiration on greater public sector accountability and
transparency, the government has initiated several measures to demonstrate a stronger
sense of responsibility in the use of public funds and efficiency in the delivery of
services. In analysing and assessing public expenditure, a number of challenges cut
across all types of outlays such as policy challenges in optimizing the use of public funds,
establishing the appropriate level of public expenditure, getting the best mix of
expenditure and improving cost and operational efficiency. Various reforms and efforts
have been undertaken by the government to enhance the effectiveness of public
expenditure. Examples of such efforts are as follows:
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 Close Monitoring From the Cabinet Committee
The concept of financial and managerial accountability of public officers entrusted
with the power to manage Government funds has been given more significance with
the setting up of an Integrity Management Committee to look into the management
and proper utilization of public funds. This is one of the mechanisms by which the
government ensures the adherence to laws, rules and regulations by public officers
and their accountability to parliament.
 Transparency on Public Procurement
Public procurement constitutes a large portion of government expenditure and is an
area that is often vulnerable to conflicts of interest and corruption. To address this
matter, the government has reemphasized preference for public bidding process or
open tenders to ensure transparency in procurement and award of tenders. Only
those consultants, suppliers and contractors who have the skills and the capacities
to undertake a project or task are engaged. Those who breach their contracts will be
held strictly accountable. This is in response to public criticism against projects
awarded without tenders which have caused higher costs, delays and poor quality
works.
 Government Circulars on Public Spending
The global economic crisis has forced the government to make a number of
important changes to the institutional framework concerning public finances such as
prioritization of expenditure, scale back a number of programmes and eliminate low
– priority programmes. The government has issued several circulars on public
expenditure which outlines the strategies to ensure public money is spent
economically and efficiently by the ministries, departments and agencies. To achieve
overall fiscal discipline, the public money must be allocated wisely and in
accordance with well – defined priorities.
 Introduction of National Key Result Areas (NKRAs) and Key Performance
Indicators (KPIs)
In realizing his administration’s creed of “People First, Performance Now”, the Prime
Minister of Malaysia has introduced NKRAs and KPIs aim to provide greater
transparency on the performance of government’s programmes, services or
functions. Six NKRAs are identified namely reducing crime, combating corruption,
widening access to affordable and quality education, raisings living standards of the
poor, improving infrastructure in rural areas and improving public transport to be
achieved between the end of next year and year 2010. The government has also
instructed all ministries, departments and agencies to develop performance
indicators to improve public expenditure management.

The Public Accounts Committee (PAC)
In Malaysia, the PAC plays an active role in reviewing and scrutinizing the veracity of
public expenditure as highlighted in the Audit Reports as well as media reports on
current issues to alert parliament if money voted by the legislature is not spent in
accordance with allocations authorized, examining reports and discrepancies on
corruption, embezzlement, misspending or over spending. The Committee will
determine the issues to be discussed as well as the persons to be questioned and the
documents and the records to be examined. The proceedings of the Committee are
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closed to the public but the reports of the Committee will be tabled in parliament and
subsequently published.

The Auditees
The auditees which comprised government ministries, departments and agencies are
accountable for ensuring that accounting systems for supplying accurate, reliable, and
timely information are in place and functioning effectively; transactions are properly
authorized, executed and recorded; funds are expended for legitimate purposes in
appropriate ways; and financial statements fairly reflect the organisation’s financial
condition. In enhancing the effectiveness of public expenditure, the key elements of
good practice should be in place which include allocating funds according to the
strategic objectives of the organization, set budgets on work plan and challenge them
closely, clear rules for division of expenditure responsibilities, requirement to report on
the operational performances and holding the Controlling Officer to account for the
resources they been allocated. In addition to that, financial management capabilities
across the organization must be improved and it is important that appropriate ethics
and values be instilled within the organizations.
CONCLUSION
SAI of Malaysia is constantly reviewing its auditing systems in government entities to enhance
the effectiveness of public expenditure management and is receptive to any change which can
improve the system. It keeps in constant touch with its counterparts in the Commonwealth,
ASOSAI and INTOSAI to increase the value of auditing through work comparisons from other
countries’ experience and enabling the development of recommendations which are challenging
for the government.
The capacity of the Institution to enhance the effectiveness of public expenditure is greatly
facilitated by the overall socio – political governance environment within which audits are
undertaken. The government of Malaysia is committed to improve the effectiveness of public
expenditure and acknowledges the role of the Institution in ensuring public accountability
through the independence, objectivity, quality and cost – effectiveness of our audit reporting as
a contribution to the country’s stability and economic growth, good governance and fight
against corruption. The recent enhancement of auditor posts in the Institution and in many
Internal Audit Units of ministries and agencies will certainly strengthen the auditor’s role in
improving the effectiveness of public expenditure.
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