Kanason Pothinker finds it unbelievable that heads of ministries and departments sometimes spend huge amounts but none of them certify that best financial practices are in place in their respective areas.
Allow me to make some suggestions on what steps need to be considered to at least obtain value for money for every ringgit of approved spending in the public sector.
The need to wipe out corruption and uphold integrity is particularly important to ensure that Budget 2021, involving over RM300bn in public funds, is properly spent. Several prominent figures have recently raised concerns about the rising number of corruption cases in the public sector.
My suggestions should not require legislative changes. The changes can be directed by the Ministry of Finance under the Financial Procedure Act 1957.
But before that, let me take note of recent developments undertaken by the government to improve financial management in the public sector.
In October 2018, then-Prime Minister Dr Mahathir Mohamad issued Directive no. 1 for the year 2018, with the intent as follows:
“Arahan ini menetapkan supaya semua Ketua Syarikat Berkaitan Kerajaan, syarikat-syarikat yang dimiliki oleh Kementarian dan agency Kerajaan termasuk dibawah Kerajaan Negeri menubuhkan Unit Integriti dan Governans dan seterusnya melaksanakan empat fungsi teras yang dinyatakan dalam arahan ini” (This directive calls for all government-linked companies, government-owned companies and government agencies, including those under state governments, to set up integrity and governance units to implement four basic functions, which are stated in this directive).
Who takes responsibility?
At about the same time, the Ministry of Finance issued a circular, more than 100 pages long, on outcomes-based budgeting. We should compliment the authors of the overview, followed by the detailed circular on outcomes-based budgeting.
My quick scrutiny of this exceptionally long circular confirms my fears. The circular touches on the processes and procedures in the formulation of budgetary provisions, the formation of committees, the preparation of reports, and definitions and responsibilities. All the while, the circular stresses the importance of outcomes.
Loads of reports, with many appendixes, will be generated under the requirements of this comprehensive circular. The draftees must be congratulated for putting together many of the initiatives brought into the government, with so many other circulars over the years.
I must, however, draw attention to page MS 29/81. Here, on this page, are a series of questions being asked of controlling officers. The issue arises: who is going to sign off to the answers to these very valid questions? Here is where the most important problem is – who is the signatory? Who is required to put down his or her name and position for the ‘positive’ outcomes or otherwise?
The suggestions I am now making can be attributed to another excellent circular from the Prime Minister’s Department: “Report on the Implementation of Governance, Integrity and Anti-Corruption Initiatives 2019”. In this concise circular of seven pages, with illustrative diagrams, the importance of governance and integrity in the public sector is explained.
I need not labour over the definitions of words like governance and such associated terms. It is only necessary to put forward my suggestions for changes (restructuring) in the preparation and submission of federal and state government accounts. The restructuring that is required is to incorporate the best elements of governance in public sector financial management.
It is written in international public financial management: “People rely on their governments to provide a whole range of public services from an inevitably limited budget and therefore the better the public money is managed the more services that can be delivered.”
Reported instances of waste, corruption, fraud, losses and abuse of financial rules and regulations can hopefully be reduced to an acceptable level with financial management and practices that incorporate the best practices in governance.
The restructuring will need to incorporate the most important elements of governance in the public sector, and changes principally will occur in the way the duties and responsibilities of the principals are clearly spelt out. This includes the roles and responsibilities of management for risk and internal controls, including the process for reviewing the effectiveness of the system of risk management and internal control.
These are the matters now mandated for private sector financial management. They consequently require management to assert their compliance in their financial reports.
The management of federal ministries and departments, however, do not assert such compliance in their financial reports of government ministries and departments – or even compliance with treasury directions, treasury circulars and financial regulations.
One needs to read closely the annual reports of the auditor general to appreciate the urgent need to restructure the accountability model presently in place in ministries and departments. There are the secretary-general, deputy secretary-generals and very high-ranking division heads. But does anyone lend their names, their positions, to their key performance indicators, to their financial results (and statements) at the end of the financial year?
The secretary-general to the treasury and the accountant general attest that the financial statements show a true and fair view as at 31 December. They qualify their signatures with the statement “mengikut sebaik-baik pengetahuan kami tidak wujud apa-apa keadaan yang boleh menjejaskan ketepatan dan kesahihan Penyata Kewangan Kerajaan Persekutuan” (to the best of our knowledge, no circumstances exist that would affect the accuracy and validity of the federal government’s financial statements).
Financial statements are a consolidation of the accounts of the offices of the accountant general and the various ministries. Both these officers are not able to attest that elements of governance are in place or are applied in the ministries and departments. Only the controlling officers can do so.
The annual reports of the auditor general run into hundreds of pages, even thousands, year in and year out, with gentle ‘qualifications’ throughout the reports of instances of waste, fraud and corruption.
Perhaps a more ambitious requirement would be for the government to report on its key performance achievements against indicators in their budget statements.
The estimates for the year approved in Parliament do indicate the mission, vision statements and very generalised performance plans. I suggest that the financial statements should also consider including the key performance indicator achievements besides just stating their financial results.
What is in it for me? All I want is for our country to stand for positive development, for the good and wellbeing of all its people. We can and must do better to build a better Malaysia and a better future for Malaysians.
Kanason Pothinker is a former assistant auditor general of Malaysia, who was directly responsible to the auditor general for the planning, audit and reporting on all statutory bodies, both at federal and state levels. His career spanned 33 years from July 1959 to January 1992, and he was credited with introducing performance auditing in the Audit Department. In 2005-2006, he headed a team to review financial management policies and procedures in the public sector. And in 2017, he gave evidence at the Royal Commission of Inquiry on Bank Negara’s foreign exchange losses in the 1990s
In subsequent pieces, we will publish Kanason’s more detailed recommendations for improving public sector governance.