IF there is one government institution that has earned its respect, integrity and courage among the general public, it has to be the office of the Auditor-General (A-G).

Year in, year out, the public awaits with bated breath and disbelief the Annual Auditor-General’s Report which reveals mismanagement, misappropriation, abuses, wastages and leakages of public funds that run into millions and even billions.

Very few would question the detailed and meticulously researched reports except those fingered in the reports.

It is therefore surprising that this year, the A-G has been questioned with various allegations thrown against her - specifically with reference to the so-called the Human Resources Development Corp (HRD Corp) fiasco.

I refer, in particular, to the media articles, “So, who audits the auditor-general?” by Walter Sandosam, and “Does the auditor-general’s report provide a true and fair view?” and “Why shouldn’t HRD Corp be allowed to defend its reputation?” both by Ibrahim M Ahmad.

Even ministers and senior politicians have joined in the fray.

In essence, the writers have alleged that; “the failure to provide a balanced report on HRD Corp raises questions as to the credibility and competence of the A-G’s function as a whole”; “begins to wonder if those involved (the AG) really understand what it entails to prepare a professional report”; “it appears that HRD Corp was not given the space, latitude or opportunity to provide answers”, among others.

Walter also questioned why the AG’s report differs from the financial audit by BDO, claiming BDO has cleared HRD Corp “without any qualification”. Readers are advised to read the articles for further details.

Any casual reader, without technical knowledge of accounting or auditing, could readily rebut the allegations by the two writers. One just needs to read the AG’s audit reports or at least its summary.

Accordingly, I will draw upon the AG’s audit reports to rebut these gross allegations which unfairly diminishes the reputation and integrity of this revered institution.

A constitutional duty

As the introduction to the A-G’s audit reports points out, the -AG is appointed by the Yang di-Pertuan Agong (YDPA) to audit the financial statements of the Federation and states, activities of government agencies as well as government corporate entities.

It should be noted that the audit of government agencies and its corporate entities involves a performance audit - whether an objective, programme or activity has been carried out in an economic, efficient and effective manner.

The scope and duties of the A-G are spelled out in the Audit Act 1957. The Act authorises the A-G to audit any corporation or company that receives government grants or loans and those which are majority owned by the government.

These entities are usually incorporated under the Companies Act 2016 and are therefore also subject to statutory audits of their annual financial statements by private qualified auditors.

Hence, a distinction should be made between statutory audits of annual financial statements, and the constitutional performance audits by the A-G.

Necessarily, the A-G’s performance audits may cover several years and is focused on achievement of objectives and compliance with rules and regulations.

Nevertheless, the A-G takes into account the findings of the financial audits of recent years to make an informed decision.

Therefore, the financial audits and performance audits complement - and indeed should reinforce - each other. It is certainly irresponsible to pit the two audits against each other.

The findings of the financial audits may result in a ‘true and fair’ view; a judgment arising from sampling of critical financial activities whereas the performance audits are factual and conclusive evidence of any violations of rules or mismanagement based on the ‘duty of care’ principle.

Most scrutinised audit report

The A-G’s Report is presented to the YDPA and then tabled in Parliament for discussion. The Parliament may also refer any material adverse findings to the Public Accounts Committee (PAC) for further scrutiny.

The A-G’s report comes under heavy scrutiny in Parliament from all sides - due to partisan politics and ruling-class malfeasance.

The only defence the A-G has is a factually accurate and objectively prepared report. The A-G has admirably proven its mettle even after extreme pressure like in the case of 1MDB (1Malaysia Development Bhd).

In conducting its audit, the A-G submits the draft findings to the auditee for any rebuttal or clarification before finalizing the report.

The clarification or reply is re-produced in the audit report before the final recommendation. Furthermore, the A-G conducts an exit conference to allow all parties to share their views on the draft report.

To say auditees are not given the space and opportunity is indeed mischievous.

The writers seem to have based their allegations solely on a loss-making investment - termed Company A - but ignoring many other serious findings such as misappropriation of the HRDF (Human Resources Development Fund) or improper transactions in purchase of property.

Company A is an investment that has lost its value from 62.2 sen/share on purchas to about 12 sen three years later, hence incurring a potential loss of RM48.42 mil.

The key finding was that HRD Corp has held on to the shares against the investment panel’s advice; and that without going through the investment panel, the Human Resources Minister was approached directly for approval to renew the investment but without full information being provided. These are blatant violation of rules, regulations and ethics.

One cannot defend such abuse by saying the loss can be covered up by gains in other investments.

In fact, BDO should have qualified this matter based on the extraordinary decline in value where losses incurred or anticipated should be immediately booked in the accounts, based on the prudence accounting principle [End of Part One]. - Aug 1, 2024

Raman Letchumanan is a former senior official (environment) in Malaysia and ASEAN, as well as senior fellow at Nanyang Technological University Singapore. He is an accredited accountant (Malaysia/UK) and has a Ph.D. in environmental economics, among other qualifications. 

https://focusmalaysia.my/why-has-the-auditor-general-surprisingly-come-under-fire-part-one/