1.Economic Crime in Asia a Global Perspective- Dealing With Public Sector Fraud Enhancing Integrity and Transparency in Government Financial Management

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    PRESENTATION PAPER FOR

    ECONOMIC CRIME IN ASIA: A GLOBAL PERSPECTIVE

    AN INTERNATIONAL CONFERENCE

    Dealing With Public Sector Fraud: Enhancing Integrity And Transparency In Government

    Financial Management

    How National Audit Department plays its role in mitigating fraud and enhances the public

    accountability in Government Financial Management System

    Tan Sri Dato Setia Hj. Ambrin Bin Buang

    Auditor General Malaysia

    1 October 2008

    Fraud and corruption I believe is omnipresent. It is not confine to poor countries. As we areaware in recent, it has happened in developed countries going by the reports about Enron and

    WorldCom in U.S.A, Banco Ambrosiano in Italy, Barrings in UK etc.

    Malaysia too is an exception where as a matter of fact fraud can occur in the privatesector as well as the public sector. In reality we have had our own little Enrons in recent

    times. According to police records in 2006 there were 6,921 commercial crime cases amounting

    to RM 685 million involving Criminal Breach of Trusts, cheating and cyber crimes. On top of

    that, we had 2,892 cases involving falsification, fake currency notes, credit cards and offencesunder the copyright Act such as the censorship Act.

    As for the Malaysian public sector, suspected fraud cases which was unveiled by theA.G: reports continue to be a major public concern. These cases are considered suspected

    because under the law fraud has to be proven in court based on proper investigation by the

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    competent authorities. Until then, these cases can be conveniently classified as mismanagement

    which should at least disciplinary actions should be taken by the department heads against the

    defendant.

    Over the years, the AG Report revealed a string of suspected fraud cases. I remember several

    years ago, 4 chimpanzees were brought into the country for the Taiping Zoo falsely declared as

    being sourced from a breeding state in Nigeria. However, these animals were actually capturedfrom the wild jungles which if traded would be a violation of international convention in trade in

    endangered species or CITES. In the process, cost in bringing and sending back the animal

    would incur public expenditure.

    Last years AG Report too entertained a number of suspected fraud cases. For instance, the

    computerized land registration system which was implemented nationwide about a decade agowas flawed in terms of its data integrity which could be easily manipulated by unscrupulouspeople to undertake land transactions. In fact, police records showed that there were 185 cases

    of improper land deals. This occurs because during system implementation, data entries were

    not properly verified for their accuracy. There was also a case of misuse of welfare and in a fewstates whereby a few dead persons were the beneficiaries continue to receive the welfare. Then,there was the case of mismanagement of revenue emanating from private quarry operators in one

    of the states, which effectively cost the state several hundred thousands of ringgit in revenue all

    because the system used was poorly implemented resulting in rampant under declaration ofquarry output.

    The 2006 AG Report also caused a stir when the ACA followed up with their own investigationresulting in several people being hauled to the courts for suspected fraud and corruption in the

    procurement of training equipment by youth skill training centers.

    In the 2007 AG report among others unveiled cases of possible fraud in the diesel subsidyscheme meant to help our fisherman.

    Enhancing Integrity and transparency

    Integrity does not only relate to corruption but also to do the best in performing ones

    responsibilities. It also applies to a person who is incumbent to comply with procedures, rulesand regulation. Even if a person fails to comply with procedures not because of corruption but

    because of knowledge he/she is still considered as not having the integrity. Therefore, he should

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    not fail to comply with rules and regulation. Through confident and belief, one should

    demonstrate the level of high integrity. People of integrity think, say, promise, and do things

    coincidently. With their unshakable character, good reputation, reliable and responsible they earnour trust and respect. They make tasks become duties and at workplace, they don't waste time but

    gladly carry out their responsibilities; they don't engage in destructive and negative gossip, but

    build self confidence, teamwork, and morale; they don't abuse their privileges and position, butrespect their employer's property and reputation.

    Transparency is the right of the stakeholders to know the outcome of the government programs

    and projects. Stakeholders are the public. They are the taxpayers and non-taxpayers who not onlywanted to know the result of the programs but also to benefit from them. Government gained its

    mandate to carry out programs and projects that are useful for the public such as hospitals,

    schools, universities, factories and infrastructures such as airport and highways for the benefit of

    the public. The financial as well as the progress reports of the programs are tools to show how

    transparent are our government.

    Enhancing Integrity and transparency Involve several parties:

    1) Departmental heads/controlling officers

    To ensure that financial management rules and regulation are strictly adhered to by their

    subordinates since they have been designed to ensure accountability and prevent fraud.

    This can be done by:

    i) constant supervision of staffs involved in day-to-day financial management to check

    whether they are diligent and competent

    ii) effective monitoring through establish mechanisms such as the JPKA (Committee on

    Financial Management and Account) which is mandated to convene four times a year to discuss

    audit and other financial issues.

    iii) to conduct spot checks on a regular basis

    iv) to provide continuous staff training to improve their competency in financial management.

    v) to report to ACA or police a suspected fraud and corruption cases.

    vi) to take disciplinary actions on staff responsible for mismanagement or fraud. For e.g.imposing surcharge.

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    2) Roles of Internal Auditors

    Most Government departments and agencies have internal audit divisions which now arestaffed mainly by cadre auditors from my department.

    Internal Audit can play an effective role in combating fraud provided they are competentand have the enthusiastic support of their department or agency head.

    They should keep a sharp eye on whether effective internal control is steadfastly

    obscured by the departmental staff and investigate every complaint about possible fraud withinthe organizations. Their report should contain precise recommendations pertaining to actions

    that can be taken against the suspects. Thus, there internal auditors who have a working

    knowledge of fraud auditing will have an advantage.

    In cases where investigation conducted revealed that there was an overwhelming

    evidence of a fraud occurring in the organization they should not hesitate to report to their

    departmental head or to the Auditor General.

    3) Role of External Auditors From The National Audit Department

    As mentioned earlier, over the year the AG reports contained cases of possible fraud

    which insist further investigation for purpose of presentation by the appropriate authorities.

    For sure, we will never know the extent of fraud in the public sector since the auditing

    done is based on sampling.

    However, the NAD has recently taken several steps to enhance its auditing capacity intandem with the Government polity to enhance integrity and accountability in the public

    sector. With an additional 500 staff approved to us recently, we can now do more auditing and

    this represent another significant step for us to play our role in combating fraud and corruption in

    the public sector. We have recently introduced the rating system for financial management in thepublic sector based on their accountability index in which a comprehensive approach is taken to

    audit every major aspect of financial or management, and in the process, we hope to detect

    irregularities and discrepancies which can be tell-talk signs of fraud.

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    The 2007 Auditor Generals report shows the following:

    Star Rating for Federal Government

    Agencies

    Rating/ Numbers of Agencies

    Excellent

    (4 Stars)

    Good

    (3 Stars)

    Satisfactory

    (2 Stars)

    Un-

    satisfactory

    (1 Star)

    Federal Ministries 1 22 5 -Federal Depts 5 20 6 -

    Federal StatutoryBodies

    2 22 2 -

    Total 8 64 13

    Star Rating for State Governments

    Agencies

    Rating/ Numbers of Agencies

    Excellent

    (4 Stars)

    Good

    (3 Stars)

    Satisfactory

    (2 Stars)

    Un-

    satisfactory

    (1 Star)

    State Treasury - 13 - -

    SEDC 1 9 3 -

    Islamic Councils - 7 6 -

    State GovernmentDepartments

    1 33 28 -

    State Statutory

    Bodies- 3 1

    Local Authorities - 12 10 -

    TOTAL 2 77 48 -

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    be associated with attempts to avoid calling tender by pecah kecil or subdividing purchases,

    unqualified bidder given contracts, and manipulating of ICT Systems (land scam, misuse of local

    orders under the eSPKB).

    Generally, the government has sufficient laws and regulations enabling the departments/agencies

    to take actions against those wrongdoers. Among others, Government had issued Financial

    Procedure Act 1957, Treasury Instructions, Treasury Circulars and General Orders. To ensurethat all the laws and regulations are adhered to, I suggest that the heads of department/agency

    ensure that the element SIKAP exists in his/her department. SIKAP means:

    S- SUPERVISIONclose supervision given to the subordinates.

    IINTERESTevery officer must have interest in their work.

    KKNOWLEDGEevery officer must have sufficient knowledge in their field of work.

    A- ATTITUDEevery officer must have the right attitude in performing their duties. A

    culture that values honesty, trustworthy and efficiency must be instilled.

    P- PROCEDURES - proper procedures should be established for each activity and

    monitored to ensure that they are complied with.

    For serious cases, I hope those people who are found to be directly negligent in their work that

    concern money should not be rewarded by giving them excellent services certificate, very highmarks in their annual performance evaluations report as well as awards and titles. Mitigatingfraud and financial mismanagement is an ongoing process where National Audit Department as

    well as other government agencies such as the accountant general and treasury has been working

    hard to ensure financial management and accountability chain is in place as what the laws haveprescribed us to do maintaining public trust. While total elimination of fraud and corruptions is

    impossible, minimizing the risks through proper hiring of staff, training, and deployment of

    procedures and internal controls have helped reduce fraud cases and increased managementsawareness regarding red flags or warning signs before major damaging consequences happens.

    Malaysian Government has been in constant effort to promote awareness on accountability,

    integrity and transparency among the public servants in order to shoulder the trust that the public

    have entrusted upon us. The better we could cope with fraud the better we are in improving thefinancial management for our nation.