Brief Outlook on AG Report 2012

The much awaited Auditor General Report was published recently and the nation is gripped with unearthed stories about mismanagement (again), unrealistic purchases (what’s new?), inefficiencies as well as wastage.

We should really brand the momentous AG announcement as a national transparency day of sorts when discoveries like the ones exposed recently are highlighted for all can see.

What dumbfounded the nation is the fact that these findings are nothing new and had been going on for years but astonishingly, nobody in the audited government agencies learnt anything from past mistakes! Is the AG Report being treated as a insignificant memo by the misbehaving departments? Won’t the junior officers take heed of the mistakes made by their senior management about these gross mismanagement?

Leading the pack for inefficient spending would probably be the Ministry of Education:

Security in schools sees RM2bil go down the tube

The 2012 Auditor-General’s Report has revealed severe mishandling of RM2.051 billion with regard to hiring security contractors for schools between 2010 and 2012.

From poorly prepared contracts to hiring of septuagenarians as security guards, the auditor-general said the management of security services in 35 schools and hostels surveyed was generally unsatisfactory.

The audit, which involved schools in Selangor, Perlis and Sabah, found that the contracts were not uniform and did not state specific requirements set by the Education Ministry.

In some schools, the audit found that contractors had breached the terms of their contracts by hiring security guards who are too old, unfit, dressed inappropriately, ill-equipped and had not been subjected to background checks.

Nineteen of the 35 facilities visited by the audit team did not have anyone guarding the entrances and people were seen entering and exiting freely.

The audit team found that the Education Ministry was not keeping proper tabs on the implementation of the security project and failed to penalise errant contractors.

Now who is the contractor? We would think that those who are manning the tender and the contracts department in the ministry would have been a seasoned disciplinarian by now and is aware that the audit department will be breathing down his/her neck just to ensure that the security contracts are running efficiently. But obviously, we cannot train the civil servants in charge of this important task to be honest and diligent. In the end, payments are duly made without any regard to the delivery of services.

Another governmental arm which wasn’t performing was the police:

Police lose weapons, Customs men lose shoes

The Auditor-General’s 2012 report reveals that the Royal Malaysian Police Force recorded a total of 309 missing items in the form of weapons, handcuffs and cars.

It also reported that the Royal Customs Department wasted a whopping RM600,000 on 7,659 pairs of shoes that were not according to specification and were then badly damaged during prolonged storage.

The items missing from the police force were recorded between 2010 and 2012, resulting in losses amounting to RM1.33 million.

The auditor-general reports that handcuffs topped the list of missing items at 156, followed by 44 weapons and 29 police vehicles.

Although the amount is small, the fact that weapons can be missing from the police force shows that there is a severe lack of controls in the police department and this doesn’t just involve money but it involves public security issue as well. Where did all the weapons go? How could they have lost it? From now onwards, KDN should really look into their SOP because if from 2010 to 2012 we lost 44 weapons, imagine how many had sifted through the cracks in years before that.

Then there is this incinerator project which not many know of:

Incinerator projects cause millions to go up in smoke

The National Solid Wastes Management Department (JPSPN) spent RM199 million on incinerators over the last four years, and then found there was no expertise to operate such machines in Malaysia.

All four incinerators at tourist spots in the islands of Langkawi, Pangkor and Tioman and in Cameron Highlands saw construction delays of two to three times their original schedules.

And even after completion, the Auditor-General’s 2012 Report says, three of the incinerators were not operated for 223 to 642 days, all because of the lack of expertise.

A fifth incinerator planned for Labuan was scrapped.

So basically RM200 million was spent on something we don’t really know about. On top of that, it was unused for up to two years because the person in-charge do not know how to find ways to operate it. For two years they presumably tried to find people who can make the incinerator worked, but alas the search was futile. Yes they could find people who can build it, but they couldn’t learn or find people who can operate it. Two years.

Bear in mind all this money wasted came from Budget 2012 which was made in 2011. May we suggest the Treasury to look into the numbers again and prepare a much lower budget for the agencies above for Budget 2014? From the lackdaisical attitude and their cavalier approach towards handling other people’s money, surely they should not hold a lot of money to begin with.

Next is the issue on the police force again:

Costly planes, but grounded because no funds

Between June 2008 and December 2010, the Malaysian police purchased five Beechcraft King Air 350 aircraft for a whopping US$58.25 million (RM175.24 million) for their Air Wing.

The planes were supposed to facilitate the upgrading of the nation’s air security.

However, within less than five years of usage, one of the planes had to be grounded for eight months, between September 2011 and April 2012, while another could not be used between June and November 2012.

Furthermore, out of the five, only three aircraft have been delivered so far.

The project was awarded after direct negotiations with Hawker Pacific Airservices Ltd, through its agent  EZ Aviation Sdn Bhd.

5 planes costing RM175 million that means each plane is averaging RM35 million. We could understand if the cost includes maintenance for the next 10 years but if it doesn’t then RM35 million for a twin turboprop aircraft at a base price of USD6 million (according to the plane’s website) is way too much.

But that is not the least of the problem. The fact that two aircrafts have not been delivered until now should ring some alarm bells from the police’s procurement department. But obviously someone was sleeping on the job.

Of course the mother of it all is the fact that some people in RTM thought they could get away with this:

Clocks, scanners and “miscellaneous items” cost RTM RM9m, up to 7,200 times over budget

The Broadcasting Department blew its budget spending RM120,210 on clocks and scanners alone, thus overpaying for these items by thousands of times beyond its actual cost.

Despite budgeting RM100 per unit for a clock and RM200 per unit for an A4-sized document scanner, the Auditor-General found that the Broadcasting Department spent RM3,810 per unit for “branded” wall clocks and RM14,670 per unit for the scanners.

In the 2012 AG Report, it found the department bought 20 branded wall clocks and three scanners for national broadcaster RTM’s offices in three states.

The department paid RM76,200 for the clocks, which was 3,810% above its estimated budget, and RM44,010 for the scanners, which was 7,235 times more than its initial budget.

The department also bought five scanners for A3 sized documents at an inflated price of RM20,630 each, 103,150% more than its estimated budget of RM1,000 each.

Although the ministry had explained on the use of those clocks, they were silent on the RM20,000 scanners. Anyone would be hard pressed to explain what kind of nuclear powered scanner they have bought.

Heads of department should really take leaf on how private companies are saving money. They treat their money like their children’s money. We have known so many stingy CEOs, prudent CFOs, very strict tender committees and a well disciplined procurement department. All in small, medium, and large private companies. Do you think the CFOs in YTL, Hong Leong Group, throw money just like that?

We need to look at ourselves and learn the concept of saving money which doesn’t belong to us.

Lastly is the bonus payouts by the GLCs. Although this is not mismanagement per se, but it is worth mentioning.

Bonus for losses, the GLC way for rewarding employees

Seven government-linked companies (GLCs) rewarded its employees with fat bonuses despite recording a combined loss of close to RM2 billion in 2011.

The Auditor-General Report today stated that Syarikat Prasarana Negara, an infrastructure company which had the highest recorded deficit of RM763 million among the group, gave its employees between one-and-a-half and two months bonus each.

The report also found that MIMOS, the country’s research centre, was the most generous of the group, by giving out between two and three months bonus to its employees, despite making a RM4.6 million loss in 2011.

Meanwhile, employees of KTM received the least with the railway operator distributing ex-gratia payments of a half-month’s salary or a minimum of RM500 in the same year. The company made losses of RM103 million.

The other companies which lavished its employees with bonuses despite making losses were Amanah Raya, Jambatan Kedua, Indah Water Konsortium (IWK) and Cyberview.

Now this is a catch 22 situation. The GLCs which provide services to the people are generally working under the pretext of ‘social responsibility’. Obviously they can’t make enough money otherwise the best possible way to increase the profits is to just charge the customers more.

In other words, IWK will just need to increase their rates, Prasarana and KTM just need to increase their fares. Since customers are a bunch of easily annoyed creatures, the costs were never truly borne by the public (Prasarana for instance have not reviewed fares for more than 10 years).

Realistically, GLCs need to reward staff who are performing really well despite the outcome of the financial accounts otherwise these companies will unable to motivate and retain good workers. They will move elsewhere if their contribution are not recognise.

And as mentioned in the tweets of Prasarana’s CEO, Datuk Shahril Mokhtar (the only CEO so far who took to twitter to briefly explain the AG Report findings) – Prasarana’s financial position is automatically handicapped by depreciation and financial costs amounting to RM700 million annually which greatly contributed to the RM763 million loss. Not surprising since Prasarana is an asset and infrastructure based company.

No explanation have come forth from IWK, KTM, MIMOS, Jambatan Kedua etc.

The Treasury however, did issue a brief response:

The treasury said these GLCs were not set up for the sake of making huge profits but to fulfill its social responsibility and nation-building objectives.

Hence, it was up to the Ministry of Finance to determine if these companies had achieved its key performance indicators