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AUDITOR GENERAL’S REPORT<br />

FOR THE YEAR 2009<br />

<strong>SYNOPSIS</strong><br />

AUDITOR GENERAL’S REPORT 2009<br />

ON THE ACTIVITIES OF THE NEGERI SEMBILAN STATE<br />

GOVERNMENT DEPARTMENTS AND AGENCIES AND<br />

THE MANAGEMENT OF STATE GOVERNMENT COMPANIES<br />

NATIONAL AUDIT DEPARTMENT<br />

Malaysia


PREFACE<br />

1. Article 106 and 107 of the Federal Constitution and the Audit Act 1957<br />

requires the Auditor General to audit the State Government financial statement as<br />

well as its activities and to submit his Report to the His Majesty, the Supreme Head<br />

of Malaysia and His Royal Highness, the Ruler of State of Negeri Sembilan. His<br />

Majesty will give his Royal assent for the Report to be tabled in Parliament while His<br />

Royal Highness will assent for the report to be tabled in the State Legislative<br />

Assembly. To fulfil these responsibilities, the National Audit Department conducts<br />

performance audit to evaluate the performance of State Government activities as to<br />

whether they were carried out efficiently, prudently and achieve the stipulated<br />

targets.<br />

2. My Report on the management of activities of the departments/agencies of<br />

the Negeri Sembilan State Government for the year 2009 is a result of an audit<br />

carried in nine departments/agencies and two State Government companies. The<br />

programmes/activities are the management of the maintenance of bridges on state<br />

roads, the management of sand mining and extraction activities and its impact on the<br />

environment, solid waste management and its impact on the environment, the<br />

management on the maintenance of municipal roads, the management of the<br />

education loan, the management of non-revenue water while state government<br />

companies under audit are Ganda Akademik Sdn. Bhd. And Liberty Capital Sdn.<br />

Bhd.<br />

3. The objectives of this audit is to evaluate whether the programmes/projects<br />

were implemented effectively and within the stipulated time frame, the contract<br />

specifications and terms and conditions of the agreement were complied with, no<br />

wastage and achieve their targets. Overall, the audit revealed there were still some<br />

shortcomings as reported in my Report for the year 2008. Among the weaknesses<br />

were the management of maintenance of bridges on state roads was not<br />

comprehensive; environment damages and water pollution due to ineffective<br />

monitoring on the activities of sand mining and extraction and solid waste<br />

management resulting in an impact on the environment. The management on the<br />

maintenance on municipal roads can be further enhanced to provide comfort to the<br />

users. Failure by the Negeri Sembilan Foundation to take actions against defaulters<br />

resulted in an increase in arrears on loan repayment. Negeri Sembilan could not<br />

achieve the targeted NRW rate due to poor management on its Non-Revenue Water<br />

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Programme. Generally, these weaknesses can impair the image of the government<br />

as well as the public services.<br />

4. All Controlling Officers were informed of the matters reported to obtain their<br />

confirmations. This Report also includes the current status of the matters raised in<br />

my 2008 Report to give an extent of the follow-up and corrective actions taken by the<br />

departments/agencies with respect to the issues raised. Generally, the<br />

departments/agencies have taken corrective actions on those weaknesses.<br />

5. Besides fulfilling the legislative requirements, I hope this Report will be a basis<br />

for remedial actions and to enhance the accountability and integrity of the<br />

departments/agencies. This Report is also vital for addressing the economic crisis<br />

and to act as a mechanism for the public service to transform all performance and<br />

public policies such as to ensure conservation and sustainable management of<br />

resources, reducing the digital gap between urban and rural areas, providing quality<br />

service to society, eradicating poverty, restructuring the Malaysian society,<br />

increasing the nation’s economic activities, strengthening the family institutions and<br />

to provide proper facilities. Indirectly, this will contribute to the Government<br />

Transformation Programme with its slogan “People First, Performance Now”<br />

hereby fulfilling the needs, interests and aspirations of all Malaysians.<br />

6. I would like to express my gratitude to all officers in the various departments<br />

and agencies who have given their full cooperation to my officers during the audit. I<br />

would also like to extend my appreciation and thanks to my officers who have<br />

worked diligently and their commitment to complete this Report.<br />

(TAN SRI DATO’ SETIA AMBRIN BIN BUANG)<br />

Auditor General of Malaysia<br />

Putrajaya<br />

21 June 2010<br />

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<strong>SYNOPSIS</strong><br />

PART I -<br />

ACTIVITIES OF DEPARTMENTS/AGENCIES<br />

1. Department of Public Works, Negeri Sembilan – The Management of the<br />

Maintenance of Bridges on State Roads<br />

As a technical department with the expertise and skills in engineering, the Public<br />

Works Department (PWD) is responsible for the inspection and maintenance of bridges<br />

throughout the State. PWD Negeri Sembilan spent a total of RM9.33 million to replace four<br />

bridges on state roads out of 10 bridges planned, due to limited funds. In addition, PWD<br />

Negeri Sembilan also repaired two other bridges due to urgent needs. Overall, the<br />

management of the maintenance of bridges on state roads is not satisfactory. Amongst the<br />

weaknesses observed were PWD Negeri Sembilan did not follow the guidelines for the<br />

inspection of bridges on state roads which were used by the PWD headquarters in Kuala<br />

Lumpur for the inspection the bridges on federal roads and the Inventory Registers of<br />

bridges on state roads were not updated. Immediate actions should be taken to strengthen<br />

and improve the management of the maintenance of bridges on state roads.<br />

2. Irrigation and Drainage Department, Negeri Sembilan – The Management of Sand<br />

Mining and Extraction Activities and Its Impact on the Environment<br />

Sand production, one of Negeri Sembilan state government's economic resources<br />

has generated revenue through royalties totalling RM1.6 million between the years 2007 and<br />

2009. These activities are carried out either on land owned by the state government or by<br />

individuals. The District And Land Office will issue permit after taking into consideration the<br />

technical comments from the Department Of Irrigation And Drainage, Negeri Sembilan,<br />

Department Of Mineral And Geosciences, Negeri Sembilan and Department Of<br />

Environment, Negeri Sembilan (DOE) on the appropriateness of sand extraction in the area<br />

and potential effects to the environment. Sand extraction in Negeri Sembilan is not<br />

satisfactorily managed and has caused deterioration in the quality of water, erosion on the<br />

river banks and changes to the river regime. Reviews also showed that the administrative<br />

and technical terms and conditions for sand mining as stipulated by DOE were not complied<br />

with by the operators. The Water Regulatory Authority, Negeri Sembilan did not enforce the<br />

Water Act 1920 (Amendment 2007) which serves to protect the river from pollution.<br />

Coordination and monitoring between departments involved in sand extraction activities<br />

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should be strengthened to protect the environment. Laws and regulations should be<br />

enforced to ensure no further destruction to the environment.<br />

3. Port Dickson Municipal Council – Solid Waste Management and Its Impact on the<br />

Environment<br />

The privatization of cleaning services and disposal of solid waste in Port Dickson<br />

Municipal Council (MPPD), Negeri Sembilan was implemented since 2002 in line with the<br />

directive from the Ministry Of Housing And Local Government to improve the efficiency of the<br />

cleaning services and disposal of solid waste. MPPD had allocated a total of RM22.50<br />

million for the years 2007 to 2009. SWM Environment Sdn. Bhd. was appointed as the<br />

contractor responsible for the cleaning services and disposal of solid waste in Mukim Jimah,<br />

Linggi, Pasir Panjang, Port Dickson and Si Rusa. Two waste disposal sites under the<br />

supervision of MPPD are Sua Betong and Bukit Palong. Several weaknesses were identified<br />

during the audit such as an illegal dumping, no leachate treatment pond and no basic<br />

facilities at the disposal sites, expired concession agreement and lack of proper monitoring<br />

by MPPD. MPPD should strengthen its enforcement on illegal dumping and the<br />

management of solid waste disposal sites to ensure these weaknesses do not occur.<br />

4. Seremban Municipal Council and Nilai Municipal Council – The Management on<br />

the Maintenance of Municipal Roads<br />

To ensure that roads are maintained periodically for the safety and comfort of road<br />

users, adequate allocations should be provided. For the periods 2007 to 2009, the<br />

Seremban Municipal Council (MPS) and Nilai Municipal Council (MPN) had allocated<br />

RM26.20 million and RM10.31 million respectively for road maintenance which include<br />

roads, drains, signboards, street lightings and slopes. Overall, the roads were satisfactorily<br />

managed by MPS and MPN. However, it could be further enhanced to ensure road<br />

maintenance is carried out efficiently as there were weaknesses such as road surface<br />

damaged, gaps at road shoulders, road break-up after being paved and drains not cleaned<br />

which causes discomfort to the public. The municipals should carry out regular monitoring<br />

and inspection to ensure the roads are safe to road users.<br />

5. Negeri Sembilan Foundation – The Management of the Education Loan<br />

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The Negeri Sembilan Foundation (Foundation) which was established in 1979 is one<br />

of the government bodies that provide education financing facilities in the form of<br />

scholarships and loans to the Negeri Sembilan’s residents who are eligible to enter the<br />

institutions of higher learning, polytechnics and colleges recognized by the Malaysian<br />

Government and also foreign universities. Overall, the main weakness in the management<br />

of this loan is on its repayments. As at 2009, the arrears on loan repayment is RM8.19<br />

million or 12.5% of total loans amounting to RM65.56 million and involving 3,021 borrowers.<br />

The increase in the loan repayment was mainly due to borrowers failed to repay their loans<br />

or to repay according to schedules and the borrowers did not notify on the deferment for<br />

repayment. However, the Foundation should evaluate its ability to provide future loan if it<br />

wish to remain as a provider on education loans. Other weaknesses observed were<br />

problems faced by the Foundation to process and generate accurate and updated<br />

information from the System on the Management of Education Loans as the technology<br />

used was obsolete. Effort to replace this system has not materialized as the new system<br />

could not be commissioned within the prescribed period even though it was developed for<br />

more than three years and has yet to be handed to the Foundation.<br />

6. Syarikat Air Negeri Sembilan – The Management of Non-Revenue Water<br />

Syarikat Air Negeri Sembilan (SAINS) has received an allocation of RM166 million<br />

from the Ministry of Energy, Water And Green Technology (KeTTHA) under the Ninth<br />

Malaysian Plan for the implementation of a holistic programme on Non-Revenue Water<br />

(NRW). For the year 2007, Negeri Sembilan ranked second highest out of the 13 states in<br />

respect of NRW which was 53.1%. For the years 2008 and 2009, the rate of the NRW in<br />

Negeri Sembilan was above 50% as compared to the national rate of 37%. SAINS<br />

estimated the loss of revenue from NRW amounting to RM40 million per annum in 2008.<br />

Several issues were observed such as the rate of NRW did not meet the targeted Key<br />

Performance Indicator of the National Water Services Commission (SPAN), water balance<br />

calculations were not accurate and increasing NRW rate. These weaknesses were due to<br />

the lack of staff in carrying out continuous maintenance and monitoring as well as the lack of<br />

expertise and equipment. Overall, the NRW in Negeri Sembilan is unsatisfactorily managed<br />

and needs improvements so that the NRW rate is in accordance to the objectives of SPAN.<br />

PART II –<br />

MANAGEMENT OF STATE GOVERNMENT COMPANIES<br />

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7. Ganda Akademik Sdn. Bhd.<br />

Ganda Akademik Sdn. Bhd. (GASB) which was established in July 1993 is a wholly<br />

owned subsidiary of the Negeri Sembilan Foundation (Foundation). The authorized capital is<br />

RM5 million and its paid-up capital as at June 2008 amounted to RM3.55 million. GASB<br />

carries out its education activities at two educational centres under the Department of Skill<br />

Development, Ministry of Human Resources. The management of its activities especially in<br />

the operation of the two educational centres was not satisfactory, and among the<br />

weaknesses observed were poor assets management, rental arrears and loans repayments<br />

to Foundation were overdue. The financial performance in respect of the profit margin<br />

showed an increase in negative returns while the current ratio recorded a declining trend<br />

from 2006 to 2008. However, the financial position of the GASB has improved in 2009 and<br />

was able to recover the losses suffered in during 2006 to 2008 as a result of the Economic<br />

Stimulus Package given by the government. Measures should be taken to rectify these<br />

weaknesses such as reducing operating costs, disposing obsolete assets, restructuring the<br />

organization and promoting the company’s products more aggressively.<br />

8. Liberty Capital Sdn. Bhd.<br />

Liberty Capital Sdn. Bhd. (LCSB) which was established in 1 July 1993 is a wholly<br />

owned subsidiary of the Negeri Sembilan Foundation (Foundation) with a total investment of<br />

RM1.1 million (100%). The objectives of LCSB are to improve the results of the critical<br />

subjects of Mathematics, Science and English Language among students in rural areas.<br />

LCSB manages three tuition centres owned by the Foundation at Rantau and Simpang<br />

Pertang which commenced operation in 2008 and also at Palong 5, which commenced in<br />

2009. The main activities were well managed by the company, but there were some<br />

weaknesses such as mission and vision of the company were not determined, the budget<br />

was not realistic, physical inspection of assets were not carried out, repair and disposal of<br />

assets was not done as well as physical monitoring and visits to the tuition centres were not<br />

recorded. The financial performance of LCSB was unsatisfactory as there were accumulated<br />

losses for three consecutive financial years ended 2006 to 2008. Losses were attributed to<br />

the increased spending of LCSB. Therefore, LCSB needs to enhance its strategies to enable<br />

it to increase its earnings and hence reduce accumulative losses.<br />

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