The burst of concerns to the contents of the 1st series of the Auditor-General’s Report 2013, was not unexpected. It was yet another horrifying round, a sorry saga of mismanagement and unbridled wastage of public funds, of apathy, and more seriously of outright corruption, of Malaysia’s administration.

Year in and year out we have been dished out with the same grimy fare, with little done to boost public trust that matters are being addressed.

The Auditor-General’s Report fundamentally demonstrates how this nation is bleeding itself to death. It should not and cannot be taken lightly. It’s a clear benchmark of outright failure of the system and administration as a whole, dogged on by an emphatic lack of political will.

The newly set-up Centre to Combat Corruption & Cronyism (C4), is greatly troubled at Malaysia’s slide down the slippery slope, in losing the war on graft, and succumbing to the scourge of corruption and cronyism. We are staring at a growing national debt (RM519.3 billion, October 2013) and under fire for the passing of the Goods and Services Tax (GST) in Parliament.

The imposition of the GST must be accompanied by a healthy and transparent administration that involves mechanisms to minimize leakage and corruption and to facilitate available funds for national development and payback to taxpayers. This includes the ability to monitor and collect legitimate taxes efficiently and in a timely manner.

Below are just some excerpts:

AGRICULTURE AND AGRO-BASED INDUSTRIES MINISTRY

Paya Peda Dam Development Project, Besut Terengganu

A total of RM343.55 million was allocated to build the Paya Peda Dam. This does not include an earlier allocation of RM150million for ground research works that was given in 2007. The contract period was to be from June 1, 2010 to the Nov 30, 2013. The contract was awarded to a joint venture company between Syarikat Jaks Resources Bhd and Pembinaan Sujaman Sdn Bhd through direct negotiations.

Audit Report finding:

i) As of July 2013, the progress was 18.49 percent behind schedule,

ii) Failure to adhere to contract clauses and appointment of subcontractors without ministry approval,

iii) RM0.53 million was identified as improper payment for earthworks,

iv) Selection of contractors who were not qualified and inexperienced contributed to problems in the project management, high numbers of Non-Compliance Reports and delays in project completion,

v) Failure to fully comply with EIA report.

As with most federal projects direct negotiations should be stopped immediately. Direct negotiations more often than not, is used to enrich cronies and family members and are not reflective of market value. This is an area in which government show utmost commitment.

The National Key Results Area (NKRA) has placed open tenders as a critical element in fighting corruption. The bulk of public wastage lies in this area, when projects are priced at exorbitant value to allow public funds to be shared by multiple parties. This reduces money available for other areas of development.

This is even more dangerous in the current climate, because we as a nation are continually borrowing to fund these projects and is the main reason why the government needs to implement GST to ensure that the country has sufficient money to service loans that the government took. This is necessary to prevent Malaysia from being downgraded in the international financial ratings, which in turn reduces the country’s ability to borrow more, and at a better rate.

Patronage encourages the blatant disregard for rules and regulations. It feeds an unhealthy win-win symbiotic relationship, and may assert undue influence to determine how a project is won. In this instance the fact the JV company did not abide by the requirement of the EIA as well as the terms of the contract only shows the potential interference of high-ranking individuals to prevent any action taken against the company to force the proper and timely completion of the project.

Public tendering must be made compulsory, be fully transparent for public scrutiny, to ensure the government gets the best value and cost for a particular project. The only exception to public tender is when there is a crisis or emergency, or possibility of price collusion among the companies to maintain a higher bidding price, then careful and transparent direct negotiations can be allowed to safeguard public money against corporate monopoly.

HEALTH MINISTRY

Management of Rehabilitation Programme for Malnourished Children

This programme was designed to assist in the improvement of the nutritional status of children from the hardcore poor sector and was targeted on children between the ages of six months to six years who are underweight or diagnosed with malnutrition. Assistance was provided in the form of food baskets designed to assist in the mental and physical development of hard-core poor children.

Audit Report findings:

I) Key performance indicators for weight recovery did not reflect the actual weight recovery for the underweight children,

II) Unit price per food basket was not in accordance with the guidelines,

III) Allocation of food basket was spent for other purpose including purchase of assets and equipments, furniture, hampers as well as food and beverages for meetings,

IV) Stocks were not maintained according to procedures and stocks were not kept properly.

This particular case is of public concern as it involves the appropriation of funds allocated for hard-core poor into other areas of expenditure, which were not consistent with the objective of the funds. This is outright abuse. It’s corruption no matter how you cut the cake. Some of the funds were used for the purchase of hampers for marathons, cooking competition, buying of souvenirs, T-shirts and refreshments for meetings.

The perceived lack of empathy by those involved is appalling. There appears to be a serious lack of accountability in maintaining proper stock balance and no serious procedures were in place to prevent any misappropriation of the food basket by individuals who have access to these items. As described in the report there should be a proper approval level before such stocks are removed from the store and regular stock keeping should have been conducted.

It’s repulsive to learn that those in authority approved such funds for other purposes other than what it was designed for. There must exist a check and balance mechanisms to ensure that those in authority do not act ultra vires of their function. Errant personnel must be investigated and dismissed for such grave violations. Redistribution of allocated funds is for parliament and ministries to act upon.

HEALTH MINISTRY

Management of In-house Meals in Hospital

Dietetic and culinary activity is a clinical support unit, tasked with providing food to hospital patients. It supports the hospital by providing nutritious food to assist in the recovery of patients. A total of RM353.72 million was spent from 2011 to 2013.

Audit Report findings:

I) Contract administration on food supply was unsatisfactory as food testing was not done on a periodic basis,

II) The price of the food items on the contract was unreasonable compared to market price,

III) Splitting procurement for food into smaller quantities to avoid calling for tenders and quotations.

This case is important for a number of reasons. Firstly there is a deliberate attempt to manipulate the procurement system and secondly, the purchasing of items at a higher value than market prices. Both of which potentially indicate an element of bribery and corruption. And thirdly, there is no periodic monitoring of suppliers.

It is of grave concern that individuals are allowed to manipulate the system instead of initiating a public tender. This can only be acceptable in cases of emergency and should not be a normal practice. If such a practice is common then it shows the weakness in long-term planning by the relevant departments.

It is also not logical for the items to be priced higher than market prices when items are purchase in large quantities. Normal economic logic states that the more one buys, the lower the item will cost.

The government must ensure that direct purchase can only be an exception and not the norm, strict non-negotiable policy must be adopted to prevent manipulation of the procurement process and constant monitoring of fast moving stocks must be conducted.

FINANCE MINISTRY

Inland Revenue Board Malaysia, Petroleum Division (IRBM)

IRBM is tasked with managing the petroleum tax that involves downstream and upstream providers.

Upstream providers, which are taxed under Petroleum (Income Tax) Act 1967 (PITA) are those who are involved in exploration, development, production and sale of petroleum while downstream providers, which fall under Corporate Income Tax Act 1967 (CITA) includes those who conduct processing activities such as refining, development and marketing of petroleum based products.

With the implementation of Self Assessment system for upstream providers in 2010 and downstream providers in 2001, necessitates IRBM to conduct field audits and desk audits for the verification of the validity of the self-assessment conducted by these companies.

Audit Report's findings:

i) 31 field audits on CITA companies were not completed in time which involves taxes and penalties amounting to RM8.83 million,

ii) Non-compliance of work procedures during field audits of 8 CITA cases which involves additional taxes and penalties levied amounting to RM2.57million and notices of estimate assessment and penalty amounting to RM1.94 million were not issued to 3 CITA cases,

iii) No action was taken to enforce tax collection resulted in under-collection of tax revenue amounting to RM3.34 million,

iv) No initiation of suits and property caveats against companies that did not settle tax arrears.

Comments:

The main problem here is reflective of two scenarios, ineffective management of manpower as well as timelines and no monitoring of cases from initiation to prosecution. This is reflective of the attitude of our government officers across the civil service.

Perhaps this is attributable to the lack of transparency in appointment of leaders to higher position based on merits and capability as opposed to appointment base on friendship, race and perhaps political affiliation (a combination of nepotism and cronyism). Appointment of undeserving leaders tends to lead to poor management and encourages dissatisfaction and low morale of the staff. This leads to overall poor team spirit and work ethics.

A better monitoring system is needed and this must be managed and staff by professional and capable people and leaders.

SUMMARY

It is important to acknowledge that the project initiated by the government is consistent with needs of the relevant ministries. However, the conduct and the implementation of these projects are weak and allows potential abuse of power and corrupt practices to survive.

The overall weakness in the government machinery is evident in the way public funds are wasted. The competency level of our officers is found lacking in all areas of administration including communication and dissemination of information, all information is deemed too sensitive, as evident in the handling of the MH370 crisis.

The culture of secrecy is overwhelming in most government affairs. Transparency will create a new mindset, a new culture and a level of thinking in the minds of our government officers, knowing that their actions are watched and that action can be taken against them. This will subconsciously create a culture of carefulness and openness for fear of being accused of unwanted allegations.

So where do we stand? Surely Malaysians cannot just sit back and lament yet another round of a malfunctioning administration. It is about political will, finally. Punitive action must accompany blatant wrongdoings. The rot must stop, from top to bottom, if we are to move our collective agenda to fight corruption!

PUSHPAN MURUGIAH & CYNTHIA GABRIEL are directors of the Centre to Combat Corruption & Cronyism (C4).