 2010 Asiyah Kassim

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Copyright 2010 Asiyah Kassim

ON ACCOUNTABILITY

LEGAL FRAMEWORK

PUBLIC AUDITING

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• Accountability is the acknowledgement and assumption of
responsibility for actions, decisions, and policies including the
administration, governance and implementation within the scope
of the role or employment position and encompassing the
obligation to report, explain and be answerable for resulting
consequences.

or

•Accountability is the obligation to answer for a responsibility

that has been conferred.

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Public accountability is the obligation on the part of officials thus to
provide answer and explanation on the performance and action to
those who has the right to demand for it.

Minister of Education
Issue: Fund for the Smart School Projects was not used prudently
The Minister has the authority to ask
The subordinate is accountable to give explanation to its superior
(Pengarah Pendidikan, Executives)
The Minister is accountable to the Cabinet
Cabinet is accountable to the Parliament (PAC)
They will go through a report done by Auditor General
(Act as the ‘Watch-Dog’)
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•To ensure public officer carry out the duty (financial
duty) in accordance with the established / prescribed
laws
•To make sure that government money / fund will be
used prudently without waste and avoiding fraudulent
case
•As a controlling effort as government fund is limited
Emphasized: The Parliament is accountable to society

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 What does it means
by Legal
Framework?

Refers to all the laws, the procedures,

rules and regulations established by
government for the purpose of public
financial management in Malaysia.

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The law regarding the management of public
finance is governed under several Act such as:-

Financial Procedure Act 1967

Audit Act 1957

Accountants Act 1967

External Loan Act

Treasure Instruction (Procedures)

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In Malaysia, the law regarding the public
financial management is passed by the
Parliament in which it carries the statement and
guideline for accountability.

This is to ensure that the public officials

entrusted to handle Public Fund will manage
the fund prudently and to avoid extravagance
expenditures and also to guarantee of legal
expenditure.
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 Legal Framework

1. Established certain basic principles of

Public Finance

2. To guide the executives (Cabinet &

Public Officials involved in financial
matter)
Federal
Constitution
3. To secure fiscal & accountability of
public finance of Malaysia

4. Stated in Part VII - Financial

Provisions
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 Legal Framework

Article 96 - Tax
Article 97 – Consolidated Fund
Article 98 – Expenditure Charged
Federal
Constitution Article 99 – Annual Financial Statement
Article 100 – Supply Bill
Article 101 – Supplementary / Excess Exp.
Article 105 – 107 – Auditor General
Article 108 (1), (2), (4) – National Finance
Council
Article 109 (1a), (1b) – Grants to State
Article 111(1), (2), (3) – Restriction on
Borrowing
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 Federal Constitution –
Article 96
-No tax / rate should be imposed
unless otherwise authorized by the
law
-The power to enact the tax is in the
hand of Parliament

Federal Constitution –
-It is the legalese = legal language
Article 97
-whatever money that government received
(from various sources) must be put in one
fund called ‘Consolidated Fund’
-2 types (Federal Consolidated Fund &
State Consolidated Fund)
Federal – Kept in Central Bank, Only the
Finance Minister incharged but can
delegate to Accountant
State – Kept in Private Bank, MB has the
power but can delegate to the Controlling /
Financial Official
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 Federal Constitution –
Article 98
It constituted that certain
expenditure do not need annual
approval from the Parliament to
withdraw from Consolidated Fund
e.g. Emolument, Gratuity, Pension

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 Federal Constitution –
Article 99 & 100
•Bill = proposed legislation
•Supply Bill = submitted to the Parliament
•Both stipulate (state), the executive must
submit the supply bill (proposed budget)
to the Parliament
•The government should give an idea to
the Parliament how much money to be
and has been spent
•Supply bill must first be presented to
Dewan Rakyat
•Supply bill must be submitted annually to
the Parliament
•This is one way for government to control
the public expenditure
•Why must submit to Parliament?
•The money have to be withdrawn from
Consolidated Fund
•Only after the Parliament approved then
only the money can be withdrawn
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 Federal Constitution –
Article 101
- This provision concerned with
supplementary and excess
expenditure in a case where there
is new budget to be allocated after
the original estimate have been
approved
-Excess example: Ministry and
departments move from KL to
Putrajaya thus there are excess /
additional expenditure
- Supplementary – increase
budget over approved budget for
instance, established new Ministry
under Datuk Shahrizat

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 Federal Constitution – Article 105-107

• Art 105 (1): Who is Auditor General

– He is independent person appointed by YDPA
– He reports to the Parliament
– He headed Audit Department
– To see whether the expenditure is legal or not

• Art 106 – 107: The power and duties of Auditor General

– Individual with financial experience / background is appointed
• Duties / Responsibilities:
- Examine the accounts, financial record / statement of various
public enterprises to see whether there is any fraud or
extravagance to the Parliament
– In a case of Federal Government, he has to submit annually to
the Parliament
– In state, there is State Legislative Assembly – Public Accountant
Committee will examine (it is the highest body appointed by
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Parliament to control public money)
 Federal Constitution – Article 108

• The provision is on National Finance Council – it is a consultative

forum between federal and state governments

• Art. 108(1): Setting up and composition of committee

– PM is the Chairman, other ministers appointed by PM, state
representatives (ruler of states)

• Art. 108(2): Duration: 1 meeting every year

– additional meeting when 3 or more states demand for it – the
minimum quorum is 3

• Art. 108 (4): The Matters to be discussed:

- making grants by federal to the states government
– review payment of taxes
– loan requirement
– loans to the states from Copyright
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– development plans of states
 Federal Constitution – Article 109

• The provision is on Grants to State – the grant is a MUST

(mandatory)

• 109 (a): Capitation Grants

– grant per person (depends on population)

• 109 (b): Grant for the maintenance of roads in states

• State Roads: cost per KM in each road – this is the normal
expenditure incurred by the States

• Case example: In 2002, the government had amended the Federal

Constitution as States wanted to revise
- government had changed the 10th Schedule
- this grant vary from time to time
- change to ‘Capitation Grant Act 2002’
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 Federal Constitution – Article 111

The provision on Restriction on borrowing

• Art 111 (1): Federal shall not borrow unless otherwise authorized by the
Federal Law
– must be approved by the existing law
• Art 111 (2): The borrowing power of the States
– the power are restricted
– borrowings are prohibited except authorized by the State law
– State law could not authorized borrowing from external sources – can
only borrow from local bank / institutions – still need approval from the
federal – cannot borrow with the term exceeding 5 years
•Art 111 (3): On guarantee – every state must has “State Development
Corporation”
– if they want to borrow money, the sources will need a guarantee thus the
particular states must get approval from the Federal Government – it is
prohibited to give guarantee to any agency under their limitation
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 Legal Framework

1. It is the basis of issuing instruction by

treasury

Financial
2. The main Act to control public fund
Procedure Act and assets
1957

3. The various Acts provide controlling

platform and management of public
finance in Malaysia

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 Legal Framework

Financial Part II – Duties of Accounting

Officers
Procedure Act
Part III – Control & Management
1957 of Public Finances
Section 15 - (Estimates &
Virement)
Section 15A – Controlling Officer
Section 17 – Write-Off
Section 18 - Surcharge

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 Fin. Proc. Act – Sect. 15

•On Estimates & Virement

-Can transfer from one activity to
another activity within the same
programme
-originally the act is prohibited but
it is allowable prior to approval

•Virement: ‘pindaan peruntukan’

-transfer of funds from the Surplus
programme to the deficient
program of activities
-cannot exceed within the
approved allocation

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 Fin. Proc. Act – Sect.
15A.
•Every agency must have Controlling
Officer / Official – Pegawai Pengawal
•The head is the Director General
•The role of controlling officer
concerned with the management of
fund and resources as well as control
of the operation

Who appoint?: For Federal – The

Finance Minister
For States – the MBs / CMs

Duties: The accounting officials’ jobs

can be delegated to the Controlling
Officer and they have the authority to
undertake tasks concerning public
fund
-They can report to the Service
Commission in term of
mismanagement / surcharge
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 Fin. Proc. Act – Sect. 17
The Minister for Federal fund and the
MBs / CMs for State fund shall have
the power to write off losses or
deficiencies of public money and
loss and to inform any loss, debts
and overpayments
Fin. Proc. Act – Sect. 18

The Service Commission after

consultation with Financial
authority can disclose or reveal or
report any mismanagement of those
who under employment of Federal
or State Government
Mismanagement = in terms of failed
to collect public revenue, fail to
keep proper accounts or records,
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fail to make payments etc
The adequacy of the provisions

Depend on the professional accounting practices

Depend on the integrity and responsibility of the public officer in

managing the funds.

The controlling officer should take full responsibilities and

accountable

Depend on the effectiveness of audit practices

Again back to accountability, transparency and integrity

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•It refers to audit conducted to determine the accuracy and
fairness of the annual financial statement of public agencies /
departments.
•The purpose is to determine whether the agencies have adhered
to all legal and regulatory requirements and whether the financial
statement are prepared in accordance with specified rules and
regulations.
•In the public sectors, financial audit focuses on payment made,
expenditures incurred, taxes collected and uncollected, loans
given out and repayment made and not made.
•It also checks whether financial records are maintained
consistently with the established regulations
Copyright 2007 Asiyah Kassim and procedures.
 FINANCIAL AUDIT

COMPLIANCE AUDIT

MANAGEMENT AUDIT

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 FINANCIAL AUDIT

 Refers to the audit conducted to determine the accuracy and

fairness of the annual financial statement of public agencies.
 For example: to check whether payment that they made follow the
proper procedures.
 The purpose is to determine whether the agencies have adhered to
all the legal and regulatory requirements and whether the financial
statement are prepared in accordance to the specified rules and
regulations.
 In public sector, financial audit focuses on payment made,
expenditure incurred, taxes collected and uncollected, loans given
and repayments whether have been made or not.
 It also checks whether the financial records are maintained in
accordance to the established rules to avoid and detect fraud.
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 COMPLIANCE AUDIT

 Refers to the other audit done by Auditor Audit (Audit

Pematuhan).
 It is done to see whether the agencies have followed the
established procedures, policy and to check the compliance to
instruction.
 For example: more than 200,000 agencies split thus it shows
that they do not comply with the policy.
 It is a very importance aspect of audit in Malaysia as to ensure
the standard of management and accountability across agencies.
 To avoid corruption, misuse of power and maladministration.

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 MANAGEMENT AUDIT

 It is an independent, systematic and objective appraisal of the

effectiveness of organization, operation, specific functions procedures
and management (procurement, admin, human resource, marketing
etc)
 Conducted by people inside and outside the consultant / agencies
 It is basically concerned with evaluating the effectiveness of a
particular programme and efficiency of resources
 Sometimes measure all or only certain programmes only Eg. FAMA
– on marketing
 Also known as Performance Audit = to know what are the problems,
causes and take correction
 Here, the auditor will produce a report to the management with
recommendation on outcome – provide feedback to clarify the problem
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Copyright 2007 Asiyah Kassim