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Maintaining the Accountability for the Public Essay Sample

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Introduction of TOPIC

In order to maintain the accountability for the public, the formation of the Malaysian National Audit Department plays a vital role in the process. The National Audit Department was also the foundation in the growth of the public sector accounting in Malaysia. The motive of the formation of National Audit Department is to support the financial management and public accountability through the audit of accounts and the activities done by the public sector. Therefore, the National Audit Department has been given the responsibility to conduct various types of audit in Malaysia. The National Audit Department is vested by two laws which are the Malaysian Constitution and the Audit Act 1957. Stated under Section 9 (1) and Section 6 of the Audit Act 1957, the National Audit Department is responsible to ensure the existence of the accountability in the administration and the management of the public funds through the audit of accounts and activities done by the Federal government, State government, Local government and the statutory bodies.

As stated by the Auditor General of Malaysia in year 2007, the National Audit Department has to audit accounts consisting of 27 Federal ministries, 86 departments, 13 State governments, 112 Federal government agencies, 139 State government agencies, 144 Local authorities and 15 Islamic religious councils. In addition to this, the government-linked companies who received grants from the government will also be audited by the Malaysian National Audit Department. The National Audit Department is led by the Auditor General. Stated in Article 105 of the Constitution, the Auditor General is chosen by the Yang Di Pertuan Agong with advice by the Prime Minister. The appointment will then be done after the consultation with the Conference of Rulers. The National Audit Department will help the Auditor General by providing independent review of the performance and the financial management of public sector agencies and bodies while implementing audit obligations.

As seen in the chart in the previous page, all the audit divisions in Malaysia are supervised by the Auditor General. The staffs in the National Audit Department are the members of the Malaysian Civil Service where their employment’s terms and conditions are reviewed by the Public Service Commission (Suruhanjaya Perkhidmatan Awam Malaysia). The Public Service Commission are the one with the responsibilities in choosing the candidates to be hired in the National Audit Department. These staffs are assigned with the powers of the Auditor General, as stated in the Federal Constitution and Audit Act 1957 for carrying out audit. The Auditor General’s office is a part of the administrative set-up. It is an independent from the executive branch of the Government. His independence is assured by the provision in the Constitution for the appointment, remuneration and security of lease of the office. It is also stated in the Constitution that the Auditor General is able to resign at any time but he is not allow to be removed from the office without the decision by the Federal Court. He also has the power to obtain and retrieve any explanation and access to all records and documents including classified documents that would enable him to carry out his duties. There are mainly three types of audit works that need to be done by the Malaysian National Audit Department.

The three type of audits carried out as stated in the Audit Act are Financial Audit, Compliance Audit and Performance Audit. Financial Audit is done to give opinion on whether the financial statements that have been prepared by public sector agencies showed true and fair view of the financial position. Financial audit requires the Auditor General to test out the truthfulness and fairness of the financial information that have been prepared. Besides that, the financial statements will also be audited and checked whether it has been prepared in accordance to the financial reporting framework requirement. It is compulsory for the Auditor General and the National Audit Department to conduct this audit work in order to prove that the financial statements of the Federation, States, Local and other public agencies and bodies are clear to its viewer as provided by law. The second type of audit work that is done by the Malaysian National Audit Department is the Compliance Audit. The Compliance audit is different from the Financial Audit. This is because it is not compulsory for the all government agencies to do Compliance Audit yearly.

The Auditor General will examine and review the transactions and activities of all the ministries, departments and agencies to determine whether they have followed all the laws and regulations in Malaysia. As what we have learnt in class, we can take an example where the government departments need to spend their income or expenditures based on certain purpose. Therefore, the Auditor General will check and verify whether certain government departments have used their income and expenditure based on the designated purposes. The last type of audit work done by the National Audit Department is the Performance Audit. The performance audit involves studying and evaluating specific programmes or activities done by the ministries, departments or other government agencies. This is to ensure that the objectives of the programmes or activities are met and whether the implementation of the programmes or the activities was carried out in effective manner. We shall now discuss on the accountability process done by the Malaysian National Audit department. Referring to the website of National Audit Department, they have now implemented the Accountability Indexing method.

It outlines the main indicators and sub indicators to be considered for assessing each of the elements and describes the scoring and ratins system relating to

the elements of the financial management being assessed. When applying the Accountability Index, the

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auditor should consider audit objectives and apply professional judgement. The Accountability Index will enable the government ministries, departments and agencies to assess the flow of their financial management performance which will become the foundation for benchmarking towards achieving for excellence in their financial management. This will also help them to apply a work culture of best practices among them. The index will also boost a healthy competitive environment among the public sectors to improve their financial management. Most importantly, this method will enhance the accountability, transparency and efficiency of the public service delivery system performance.

The public sector bodies are assessed by six elements which comprises of the organisational management control, budgetary control, receipts control, expenditure control, trust accounts / deposit account management, and inventory management. However, there is a little difference for Federal and State Statutory Bodies, Local Authorities and Islamic Religious Councils. There are three additional elements that they are assessed which are the investment management, loan management and financial statement included. The element Organisational Management Control is important in making sure that the financial management is administered efficiently and effectively. They need to comply with the financial management regulations and guidelines. Every government bodies will need to ensure that they have also established effective internal controls and monitor their financial performance continuously. The assessment is done to see whether the agencies have established an effective structure, system and procedure on their financial management. The organizational management control of the public sector is evaluated based on several main indicators as shown in Table 1.

The Budgetary Control is the management’s policies and procedures for managing and controlling the use of the allocated funds and other forms of budget authority. The assessment of the budgetary control is to ensure that the agency budget is planned well, prepared, allocated and managed accordingly to the Legislations and objectives. The five main indicators to assess the budgetary control are applicable to all Federal and State ministries and departments, Federal and State Statutory Bodies, Local Authorities and Islamic Religious Council. All the indicators are as stated in Table 2.

The third element that will be assessed is the Receipts Control. It comprises of the tax revenues, non-tax revenues and non-revenues receipts. Tax revenues include both direct and indirect taxes. The non-tax revenues comprise the fees for issuance of licenses and permits, fees for specific services, proceeds from sale of government assets and many more. Other than that, the non-revenue receipts consist of the repayments and reimbursements such as the refunds of overpayments in previous years and repayment of loans from Federal Government Agencies and State Governments. This assessment is applicable to all Federal and State ministries and departments, Federal and State Statutory Bodies, Local Authorities and Islamic Religious Council. All the indicators are as stated in Table 3. Table 3:

Main Indicators for Receipts Control

No.| Main Indicators|
1.| Control of Revenue Forms * Usage of Revenue Forms * Recording of Revenue Forms| 2.| Receipt of Monies * Authority/ Approval * Security Controls * Receipts Through Mails * Receipts At The Counter| 3.| Bank-in Collections|

4.| Accounting Control on Receipts/ Revenues|
5.| Management of Account Receivables|
The fourth element that will be assessed by the National Audit Department is the Expenditure Control. There are three types of expenditure which are the charged, operating and development expenditure. Charged expenditure is expenditure which is directly charged to the Consolidated Fund such as the royal allowances and various type of remunerations. The operating expenditure is the expenditure to finance the daily programmes and activities of the ministries, departments and agencies. These expenditures need to be accounted for correctly and the relevant records must be updated all the time. The aim is to prevent wastage, misappropriation and loss of funds to the government. The main indicators for this element can be seen in Table 4.

The fifth element to assess for the Accountability Index is the Trust Fund / Deposit Account Management. The receipts and expenses related to the Trust Account which is established under the Financial Procedure Act 1957 for accounting contributions from the public and government bodies are accounted into the Trust Account or the Consolidated Trust Fund. Assessing this area or element would help in determining the extent to which these accounts are being managed according to the stipulated objective and to ensure complete and updated records are maintained. The indicators are shown in Table 5 is applicable to all Federal and State Ministries and Departments, Federal and State Statutory Bodies, Local Authorities and Islamic Religious Councils.

The sixth element is the Asset and Inventory Management. The assessment is done to make sure that these assets and inventories of the agencies involved have been properly managed, safeguarded and reported accordingly to the rules and regulations. This assessment is applicable to all Federal and State ministries and departments, Federal and State Statutory Bodies, Local Authorities and Islamic Religious Council. All the indicators are as stated in Table 6.

The score and rating for the Accountability Index is done on all the public sector bodies and agencies involved. Each Government Ministry/ Department / Agency will be assessed based on indicators / sub indicators under the respective elements and each indicator or sub indicator consists of several criteria. The assessment is scored from 1 to 4. The score of each indicator and sub indicator will be summed up based on a given weightage to obstain the overall marks. The basis of the given weightage is based on the level of seriousness or the impact of the element to the overall financial management.

The weightage for the financial management elements of the Federal and State Ministries / Departments is different from the weightage for the Federal and State Statutory Bodies, Local Authorities and Islamic Religious as they have extra three elements that have been mentioned earlier. National Audit Department have done a good job by implementing the Accountability Index with indicators and criteria which are specific, measurable, achievable and relevant. This would lead to a long-term successful method by enabling the government ministries/ departments/ agencies to be assessed and rated objectively based on their financial management performance. The result obtained can be used to identify the areas of weaknesses so that the organization will embark on improvements to enhance its financial operations and performance.

Challenges Faced by the Malaysian National Audit Department
The main challenge involving the public sector environment is its structure, size of public expenditures and the number of programmes and activities done. This would also automatically affected the National Audit Department and also provide challenges to them in providing and safeguarding the public accountability. One of the many challenges faced by the Malaysian National Audit Department is the transition from Cash to Accrual Based Accounting. The implementation and the use of accrual accounting in Malaysia are seen possible as the transfer and corporation of major government projects have proven to be successful. The adoption of full accrual based accounting system shows precisely the true financial position of the public sector agencies. However, the main challenge is that the National Audit Department has insufficient skilled manpower to deal with the transition process. However, the National Audit Department has developed a structured training programme in its strategic plan to deal with this challenge. Next challenge that is faced by the Malaysian National Audit Department is the new areas of Auditing.

As time passed by and the technologies are beginning to become more advanced, the National Audit Department will strengthen their role in new areas of auditing. There are two new areas of auditing which are the Environmental Audit and Fraud Audit. The National Audit Department aims to do more in the area of environment due to the continuous increment of concern of the Government and the public regarding the mismanagement and the deteriorating environment. The National Audit Department has come up with the environment audit guidelines and conducted several courses. On the other hand, Fraud Audit becomes the centre of attention as the public expect the National Audit Department and the Government bodies and agencies to play an effective role in promoting a culture that values honesty, responsibility and accountability in the exercise of authority and utilization of national resources. Because it is crucial, the National Audit Department is in the process of preparing a guideline on fraud as preparation to conduct the audit. The challenge that would occur is that the National Audit Department would need time and space for its staffs to adapt with these new areas.

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