Chapter 11
Meaning of Audit
Audit serve as accountability relationship. It
is independent, objective assessment of the
fairness of management representations on
performance or the assessment of
management’s systems and practices,
against criteria, reported to a governing
body or others with similar responsibilities.
Purpose of Audit
 To enable auditor to express true
and fair view in material respects
and identify framework of financial
statement.
 To add credibility to the financial
statement reviewed.
 To determine any embezzlement
from the estimation being planned.
 To declare any wrong doing in
relation to the principle, order,
rules, and regulations.
 To declare the elements and factors
which fail to lead for effectiveness,
efficiency, and economical
utilization of the government’s
resources.
Oversight, Insight and foresight role.
Oversight
 Evaluate whether gov organization
are operating effectively and
efficiently.
 Verify government organization
financial and program performance.
 Monitor the effectiveness of
government organizations internal
control system.
Insight
 Examine and understand
programme and practices
 Identify loopholes and problems
 Provide feedbacks on current
policies and practices
 Recommend improvements.
Foresight
 Inform risk and future challenges.
 Identify opportunities
Regulatory Framework for Public Sector
Auditing
The auditor mandates for public sector
auditing in Malaysia are the federal
Constitution 1957 and the Audit 1957.
The auditor are also required to conform to
other professional standards and
regulations promulgated by the following :
- Malaysian Institute of Accounts
- International Organizations of
Supreme Audit Institutions.
- Asian Organization of Supreme
Audit Instituition.
Categories of Audit
There are two categories of audit:
1. Internal Audit
- Internal auditing facilitates public sector
organization to achieve accountability and
integrity through sustainable organizational
operations and performance.
- The audit work primarily focuses on the
adherence to management of operations,
internal control system, proper record
keeping and fraud detection.
- Review and evaluate activities to maintain
efficiency and effectiveness of internal
control and governance.
- Understand organization’s directions and
objectives .
2. External Audit
- External audit is periodic audit conducted
by independent auditors.
- Verify accounting records, ensure comply charged, support with proof
with guidelines and principles and of payments
determine statements prepared fairly
 Due care: proper use,
- AG examine financial statements, program control, maintenance and
and activities disposal of public stores

- 3 types :Financial, Compliance and  All accounts record properly

Performance Audit and faithfully maintained.

3 Types of audit

1. Financial Audit 2. Compliance Audit

 - To determine whether financial  The inspection and evaluation of

statement show true and fair view the activities and determine comply
and comply with legal and with laws and regulation
regulatory requirement.
 Obtain and evaluate evidence
 Obtain and evaluate accounting whether activities confirm to rules
records, maintain properly and up and regulation
to date.
 Sec 6(e) of AA1957
 Post audit, done annually; Art 106
 Pre audit- to control the accuracy of
of Fed Const and Sec 6 and 9 of
collection and recording
AA1957.
 done cyclically (not conducted for
 Attempts to give reasonable
all activities and agencies)
assurance whether:
 Reports on legality and control of
 Annual financial
specified operation of an
statements are
organization
accurately and fairly
presents all related  Reports on probity of public funds
transactions.
 Include summary of the findings or
 Allocations are spent the expression of assurance to the
according to the degree of compliance
approved votes.
 Investigate of:
 All expenditure
incurred is according to  Background
laws and  Overall organizational
authorisations. management
 AG needs to ensure:  Committees established.
 Reasonable precautions to  Systems and procedures
safeguard the collection and
custody if public money  Financial analysis

 Issues and payments with  Financial management

proper authority, properly
 Program/activity
  Conclusions and  Efficiency- evaluate
recommendations output and impact, value
for money audit and
performance evaluation.

3. Performance Audit

- An independent
assessment or examination of the
extent to which an activity,
programed or public institution
operates efficiently and effectively.

- Government auditors are

particularly expected to
systematically carry out audit
examination on programmed
performance.

 Involves study and evaluation of

program and activities.

 Determine whether the objective

achieved and implementation
economical, efficient and effective
manner.

 Assure budget fully utilised.

 Cover government activities both

organisational and administrative.

 3 E’s audit:

 Economy – cost, activities

do not cause
extravagances, idleness
and overstaffing

 Effectiveness-
achievement of
objectives, staff
competency,
development of
performance measures

CHAPTER 5 :
The Concepts of Economy
• Concern only with inputs (cost
involved)
• Minimal cost and the avoidance of
waste is emphasized.
• Economy concerns only in term of
input.
• Economy is of limited use on its
own: it is not much use to know
that something was cheap as
possible if it does not satisfy the
organization’s objectives.
• As a conclusion, these 3 Es are
clearly related; Economy is about,
inputs, effectiveness is about
outputs and efficiency is about
inputs and outputs.
The Concept of Efficiency
• Concern only with outputs (revenue
collected)
• Success or failure in achieving
objectives.
• Efficiency measured by comparing
output with input based on the
following ratio:
OUTPUT / INPUT
• Input measured in units of
currency, whereas output can be
measured in either monetary
amounts or physical unit for the
public sector organizations.
• The greater the ratio, the more
output for input, the more efficient
the organization.
• Efficiency does capture both inputs
& outputs, and thus therefore
stand on its own. If organization
was efficient it means that it
achieved its objectives at a
satisfactory cost.
The concept of Effectiveness
• compare output with input.
• Achieved objective at satisfactory
cost.
• Refers to the success or failure in
achieving objectives. Therefore, it is
concern only with outputs.
• The objectives need to be more
detail so that measure of
effectiveness was more useful.
• Effectiveness is of limited use on its
own: knowing that the organization
achieved its objectives, without
knowing how much the achievement
had cost is of little value since most
objectives can be achieved with
unlimited resources.
Choices Econom Effectivenes Efficiency
y s (Output/
(Input) (Output) Input)
Hire a RM3000 20 days / RM150
permanent / month month /day
maintenanc
e staff
 Hire an RM2000 8 days / RM250 2. Operational Framework: - This
external / month month /day operates within a framework of public
maintenanc authorization and control.
e staff
3. Objective: - This include political,
Maintenanc RM500 / 1 day / RM500 economic, and social objectives to be
e contract month month /day attained.

4. No Direct Financial Interest: - Or

benefit to the contributors of resources
example: individual tax payers.

5. Accounting Principle and Practice: -

Fund Accounting (Consol Revenue, Consol
Trust, and Consol Account)

6. Political rather than financial

control:-

Concerned about delivering social

CHAPTER 1: INTRODUCTION TO PUBLIC responsibilities.
SECTOR

Definition of Public Sector

- Generally, refers to economics and

administrative functions that deal
with the delivery of goods and Power of Government
services by and for the government.
- Embodies the related economic and • Executive
administrative functions, delivery of • To formulate policy
goods & services by & from the implement by
government, ministries, agencies governmental
and department, including the administrative agencies
statutory bodies.
• Vested by YDP Agong,
Definition of Government exercise by him or cabinet
- Refers to a political organization led by PM (Art. 39 Fed
that has authority and power to Const)
make and enforce laws within a • State level: Ruler of the
country. State, exercisable by him or
Features of Public Sectors the exco

1. Stakeholder: - is a party who has an • Legislative

interest in the organization’s activity, • To make new laws or to
project or program, including those who amend or repel existing
affect, or can be affected by, the laws
organization’s action and decision.
• For Federal level vested in
Parliament, State is vested
 in the State Legislative matters, Federation
Assembly assist
states in
• Judiciary conducting
• The power to hear and research,
inspecting
determine civil and criminal
state
matters between two
activities
parties

• Head: Chief Justice –

appointed by the YDP
Agong, advised by PM, after
consulting with Conference
of Rulers.

Relationship between Federal and State

Government / Federalism

 Is a system of government in which

power is shared between the
federal government and the state
government

 Federal government have more

legislative and executive power and
also sources revenue compared to
the state government.

 Parts VI and VII of the Federal

Constitution provide detailed on
this matter

RELATIONSHIP BETWEEN FEDERAL &

STATE GOVERNMENT

Powers Federal State

Legislativ  -Art 74 of  -Ninth Sch

e Fed Const  matters of
 matters forestry
of and
education agriculture
, defense. , land,
Health islamic
etc revenues
Executive  Art 80 of  Art 81 of
Fed Const Fed Const:
 Art 80(2) of state not
Fed impede
Const :enq executive
uiries on authority
state of
Powers Federal State

Financial  Provide Shall

financial receive
Federal and assistance proceeds
state (grants) from tax
revenues  Cover own and fees,
expenditur export
Expenditure
e( charged,
s and duty
supply and
Financial developme Federal
Commitme nt) gov. will
nts  Art 111 of finance
Fed some
Borrowing
Constitutio expenditur
Powers
n:
es on
Prohibits
reimbursab
from
borrowing le basis
except -not
under authorize
authority
to borrow
of fed law
except
from
Federation
or from
bank
(approved
by fed
governmen
t) not
exceed 5
years
Public Sector Accounting

 Define Accounting: system of

Identifyin, Classifying, Recording,
Summarising, and Reporting of
financial data and information of an
organisatiom in accordance with
the accepted principle, standard
and regulations to enable users to
make economic decision.

 Accounting method practice by non

profit entities in the public sector.

 Aim to establish good public

governance in managing public
monies.

 Tool to ensure that public interest

is maximized.

Maintenance of books and records

• Vote book: a financial record by

govt agencies for recording
expenditure, liabilities, and changes
in budget

Compliance with rules and regulation

• Comply with Fed Const, Financial

Procedure Act 1957, Audit Act
1957, Treasury Instructions and
Treasury Circulars

Preparations of Reports and Statements

• Art 99 of Fed Const: submit

Statement of Assets and Liabilities
at the end of financial year to
parliament for approval

• Sec 16 of Financial Procedure Act:

to prepare annual Stmt (Consol
Revenue, Loan, Trust and Assets
and Liabilities
CHAPTER 2: THE STRUCTURE OF
MALAYSIAN GOVERNMENT

CONCEPT OF FEDERALISM
ROLES AND FUNCTIONS OF THE
- Federalism is the concept that FEDERAL,STATE AND LOCAL
forms the basis of the government
Federal State Local Government
administration in Malaysia. The
Government Government
constitution separates the
governing powers among the Authorities over Authorities Federal
executive, judicial and legislative areas in the over areas in constitution 1957,
authorities both at the federal and FEDERAL LIST of the state list Local government
state level. the Ninth of the Ninth Act 1976 (Part VII,
Schedule of the Schedule of VIII IX and XII)
The three tiers of government Federal the Federal
Constitution Constitution
Fed 1957 1957
eral
gov Example: Land, VII: Control of
ern external affairs, agriculture public places:
me internal and forestry, open space,
State governm
nt ent
securities, state works parking place,
Local defence, civil and water, garden,
governm ent and industry state recreation, and
shipping, holidays, pleasure ground
Federal government: communication fishing, or square for the
and transport, libraries, use of public
- Headed by the Yang-di-Pertuan education, and museums. VIII: deal with
Agong. health. pollution of
- Role stated in the federal list and stream
concurrent lsit IX: food, markets,
sanitation, and
State Government
nuisance
- Each state government is ruled by XI: is on burial;
the sultans excepts MELAKA,PP,SS places,
crematoria, and
which governed by Yang di-pertuan
exhumation.
Negeri.
- Role stated in the state list and
concurrent list

Local Government

- Referred to as councils and are

headed by Mayor for city council
and President for municipal council
and district council.
- Role stated in the state list.
CHAPTER 3: GOVERNMENT MACHINERY • Election Commission

- The interrelated structures and • Public Services Commission

processes that pertain to the
2. Temporary Commission
governance and accountability
structure, administrative as well as • Salaries Commission
financial management aspects.
councils

• National Finance Council

GOVERNMENT ADMINISTRATIVE GOVERNMENT ACCOUNTING • National Land Council

MACHINERY MACHINERY
• National Council for Local
Institutions and
agencies
Institutions and agencies Government

Administrative
Accounting personnel
• Armed Forces Council
personnel
department
Administrative systems Accounting systems and
and procedures procedures
• Audit general Department
Government Administrative Machinery

 includes all the mechanisms to DISCRETION OF THE EXECUTIVES

implement government policies.
ministries
 made up of three main levels:
federal, state and local • Highest body in federal level
government.
• Carry out responsibilities entrusted
 each level will involve two to t\he govt.
categories of officers responsible
• Minister-
for administration: 1 from political
direct/plan/coordinate/enforce/im
post and 1 conventional public
plement govt. policy
service post.
• Secretary General-senior
 the two officers take directions
administrative officer
from the executive to:
self-accounting ministries/ departments
 implement
policies; • maintain own set of accounting
records.
 bring about
development; • pay their own bills

 provide services & • Eg: Ministry of Defence

facilities
non-self-accounting ministries/
GOVERNMENT ADMINISTRATIVE departments
INSTITUTIONS & AGENCIES
• Don’t maintain accounts
REQUIRED BY THE CONSTITUTION: -
• Depends on AG office
commission

1. Permanent Commission
 public enterprises Malaysian Administration and
Modernization Planning Unit: - Objective of
• Statutory bodies
this units is to bring about transformation in
• Non-statutory bodies the public sector so as to improve the
country’s well-being.
department
Four Main Functions:
• carry out ministries’ functions
1. Driver and agent of change
• headed by the Director General management and administration of the
councils public service

• National Action Council 2. Plan and lead in ICT development

• National Economic Council 3. Consultant in organizational

• National Security Council
committees
• eg: National development Planning
management and ICT in the public sector.
4. Facilitate the modernisation and
transformation of public service delivery
system implementation programme.

Implementation Coordination Unit: - mission

is to be a central agency that drive national
development through coordination,
monitoring, evaluation and implementation
of policies, programmes and projects.

Government administrative personnel

 include those who work in public

service fields (armed forces, judicial
& legal services, general & public
services, police force).

 qualifications would be regulated

by federal law or yang di-Pertuan
Treasury: under the Ministry of Finance function as the
Agong & Yang Di-Pertuan Negeri.
keeper of public money.

Public Service Department: formulate and implement

policies relating to public service humas resource
management.

Economic Planning Unit: The principal government

agency responsible for the preparation of
development plans for the nation.

- Formulate policies and strategies.

- Evaluate the recommend development
programme and projects.
- Undertake research and advise on economics
- Planning the regional and corridor
development.
- Secretariat to the Economic Council.
 Government administrative systems and - Operates under MOF, accountable
procedures to MOF ( Sec 6 FPA1957)

 include the non-financial systems - Vision of Treasury – to be premier

& procedures in the govt. service
circulars.
 Matters on appointment,
promotion, leave & disciplinary
procedure of govt. personnel.
 relates to the governance
structure for financial management
of the country’s public sector.
agency responsible for national
financial and economic
management and to be an
exemplary world class agency both
domestically and internationally
Objectives of Treasury
- Ensure sustained and continuous
economic growth

 comprise of Ministry of Finance, - Strengthen national

Treasury, Accountant General competitiveness and economic
Department,. resilience

Government Accounting Machinery - Ensure effective and prudent

financial management
 relates to the governance structure for
financial management of the country’s - Purse a more equitable sharing of
public sector. national wealth

 comprise of Ministry of Finance, Treasury, - Improve quality of life and well-

Accountant General Department,. being of society

AGENCY - Role & responsibility – to inform, to

plan & to implement fiscal &
 All government accounting agency report
budgetary policies
to MOF
 Sec 6 of FPA1957 Function of Tresury
 It is include:
- To formulate and implement fiscal
 Ministry of Finance and monetary policies

- Highest body in Federal - To formulate financial management

Government to administer & and accounting processes,
govern public moneys & public procedures and standards
stores.
- To manage the acquisition and
- Administer and govern the public disbursement of Federal
money and public stores Government Loan

- The duty and responsibilities vested - To monitor Minister of Finance

in Federal Treasury Incorporated Companies

- To monitor the financial

management of Ministries,
 Treasury
Government Departments and
- A Central agency of government Statutory Bodies
 - To formulate and administer
policies related to the Government
Procurement
- To formulate policies and
administer Government Housing
Loans
 Accountant General Department
- Known as JANM formed before
independence.
- Responsibility- to maintain &
prepare the account for Federal
Government
- Vision – an organization of
global repute in public sector
accounting and financial services
Mission of AGD
- To design, develop and implement
excellent government accounting
system
- To provide advisory services and
approve accounting and financial
system in line with best practice
- To advise the decision makers in
relation to accounting and finance
- To enhance competency and career
development of the HR for the
accounting services
- To enforced the Unclaimed Monies Act
1965
Objectives of AGD
- To enhance accountability and
transparency in Federal
government’s accounting and
financial management
- To enhance accounting and
financial management system for
all government agencies
- To assist government in making
effective decisions
- To develop and implement HR
management system for the
accounting services
- To enhance the enforcement of
the Unclaimed Monies Act 1965
 Self-accounting Department (SAD)
 individual responsibility centres
GOVERNMENT ACCOUNTING
PERSONNEL
 Officers who deal with public
moneys & accounting systems &
procedures
 Responsible & legally bound to
government’s statutory
requirement.
 i.e. Accountant General, Controlling
Officer & Accounting Officer
Accounting General
 Chief Accountant and Head of
JANM
 Authority in approving accounting
matters and procedures in respect
of Federal and State accounts
 Definition of AG (TI3)
‘ The principal accountant in the
government of the Federation and the
head of the Accounts Division of the
Federal Treasury with the authority in
matters of accounting procedure over
the accounts of the Governments of
the Federation and of the States’
 AG has the authority on the
accounting procedures of inflows &
outflows of public money & public
stores
Duties of AG
a) 1-To see a proper system of
accounts is established & 2-
appropriate precautions instituted
 against losses by fraud or - Examine, consolidate and ensure
negligence budget of all agencies or dept
under his ctrl
b) i. to exercise supervision over the
receipt of the federal revenue and SURCHARGE
to take step to secure its functional
 Fine imposed to any person who is or was
collection
in the employment of Federal
ii. To accept only properly authorised expenditures Government or State Government
as charges in his accounts

iii. To report to the SG of the Treasury any material

 Fail to carry out:
irregularity connected with the public accounts
that may have been brought to his notice. - Fail to collect money
Controlling Officer - Improper payment, not duly
 Sec 15A of FPA 1957 – roles & responsibility vouched
of CO - Deficiencies of public moneys
 Chief of the accounting officer, appointed by - Fail to keep proper accounts
MOF or CM or MB in respect of each purpose
of expenditure provided for any financial - Fail to make any payment
year.  Procedure:
 Responsible for an effective management of - Notify by HOD
public money allocated to the agency under
his control - Withdrawn if Service Commission
satisfy with explanation
Duties of Controlling Officer
- Amount surcharged recover from
- To control the authorised estimates salary or pension by equal
for the particular purpose installment
- To be in charged for the public GOVERNMENT ACCOUNTING
moneys collected, received, held or SYSTEMS & PROCEDURES
disbursed and all public stores
received, held and disposed  Federal Constitution

- To secure proper exercise of  FPA 1957

performance of their duties
 Government Accounting Standard
- To report to the appropriate Svs
 Audit Act 1957
Comm and fin. Authority for every
event of possible surcharge arises  Treasury Instructions
or occurs under their control
 Treasury Circular
- To be responsible to explain for the
 Accountant General Circulars
correctness of the statement of
public money under which he is  State Government Circulars
controlling
Why needed?

 Diverse government objectives

 Large annual expenditure at all
level

 To ensure accountability of public

money

 To take care of public interest

 To ensure the objectives of public

sector are achieved