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Chapter - 12
Malaysia

1    PROFILE OF PUBLIC ENTERPRISES

Public enterprises during the colonial era were confined mainly to departmen­tal undertakings and statutory bodies providing essential public services in the transport and communications (railways, ports and harbours), utilities (water and electricity) and in the natural resources development (rubber research and replant­ing) sectors. It was not until after national independence in 1957 and the imple­mentation of successive development plans that significant growth occurred in the number of statutory authorities, companies and joint ventures with commercial, industrial and socio-economic objectives. Problems relating to economic imbalance between the various ethnic groups in the country, and also between the poorer rural areas and the developed urban areas, began to emerge and receive priority attention. Government strategies in the late 1950s and 1960s favoured rural and infrastructural development while the promotion of industrial and commercial deve­lopment was left to the private sector. However, there were demands made on the government by pressure groups for institutional reforms and direct participation by government in the private sector in order to create greater opportunities in commerce and industry for Bumiputras (Malays and other indigenous races), whose interests are specifically provided for under the Constitution of Malaysia.

Accordingly in 1969 the government launched its New Economic Policy which had as its goals national unity and social integration by reducing poverty in rural areas and increasing participation by Bumiputras in commerce and industry. The attainment of these goals of the New Economic Policy, which planned to lift the Bumiputras' stake in the economy from 1.9 per cent in 1969 to 30 per cent by 1990, was facilitated by the Second Malaysia Plan (1971-75). In this national plan the government expressed its intention to establish and operate a wide range of productive enterprises through wholly owned undertakings and joint ventures with the private sector. In particular, the government planned to undertake direct invest­ment in commercial and industrial enterprises which could be controlled and managed by public enterprises until their transfer to Bumiputras. The channelling of development expenditure through public enterprises has continued unabatedly through a succession of national development plans to the current Fifth Malaysia Plan (1986-90).

1.1.    TYPES OF PUBLIC ENTERPRISES

Under the Constitution of Malaysia, both Federal and State governments are empowered to establish public enterprises. There are now 18 departmental undertakings, 480 statutory corporations and about 847 government compa­nies.

Public enterprises in the form of departmental undertakings operate as separate entities within the broad framework of their parent departments. Federally, the Postal and Civil Aviation Departments are typical of such under­takings but at State levels, the Water Supply Boards are the only such examples. Appropriate legislation enables departmental undertakings to be conducted on commercial lines, including the use of accrual rather than cash accounting for their financial transactions.

Public enterprises in the form of statutory corporations are established under legislation enacted by the respective Federal or State legislatures, while those in the form of companies - such as the Malaysian Airlines System and Petronas (Petroleum Company) - are formed under the Companies Act and are either fully owned or the majority of the shares are held by the government. Statutory corporations may also own companies or have majority share holdings in them. These enterprises are established to undertake a multiplicity of functions mainly to accelerate the growth of national development. Some are established to operate and control strategic industries in the national interest such as transport and communications - railways, airlines and shipping, while others are established to regulate and supervise the development of primary products and raw materials such as rubber, oil palm and petroleum.

The actual forms and types of public enterprise are largely determined by the activities involved. Where functions are regulatory in nature and activities cut across the responsibility lines of other agencies, the statutory corporation is commonly used. However, enterprises in which the activities are essentially commercial and where the government intends eventually to transfer ownership in full or in part to Bumiputras, are set up as companies, subject to certain criteria. Initially there must be equity participation of 30 per cent Bumiputras, while the same percentage of their staff must be local. Such companies must also comply with government policies, be profit-motivated, and are required to project a favourable national image. Both the government and the corporations exercise control over the subsidiaries set up by these public companies by appointing their own representatives to the respective boards of management.

1.2.    ORGANISATIONAL STRUCTURE

The departmental undertakings which function within the organisational ar­rangements of a parent ministry, are subject to the same broad framework of government controls. The management of each departmental enterprise is con­trolled by a chief executive appointed by the head of the public service on the recommendation of the responsible Minister. The same procedure applies for transfers, but a chief executive can be removed from office only by the independent Public Services Commission.

In the case of statutory corporations, the management normally consists of a Chairman and board members, the number varying with the size of the undertaking. The board members include representatives from the Treasury, the ministry concerned, politicians and persons knowledgeable in the relevant fields of activity of the corporation. This is to ensure that the Board is a representative one, reflecting a proper balance between government control and managerial flexibility. The appointment and removal of board members is the prerogative of the responsible Minister but, in rare cases where the law so provides, of His Majesty the King of Malaysia. Although the board is responsible to the Minister, it exercises its day-to-day functions independently of the government subject to specified controls which the ministry exercises. In particular, the estimates of expenditure are approved by the Minister, while power to invest surplus funds other than in fixed deposits requires ministerial sanction. Enterprises are also required to adhere to all policy guidelines as laid down by the Minister or the government.

The number and composition of the management board of a government company are set out in the Memorandum and Articles of Association establish­ing the company. The members of the board are appointed and removed by the Ministers concerned. In the case of companies owned by statutory bodies, however, the appointment and removal of board members are by the corpora­tions' management boards which are responsible to the Minister or to the board of directors of the corporation which owns the company. In cases where the company is not wholly owned by the government or by the public corporation, the management board is also responsible to the shareholders. Although go­vernment representatives sit as members of the management board of compa­nies to oversee the implementation of government policies, there is no interfe­rence in the daily operations and activities. However, certain controls exist in such areas as product price determination, while indirect control is exercised over the company's capital and other financial needs in determining increases in paid-up capital, loans, and advances.

1.3.    STAFFING AND TRAINING

Personnel in departmental undertakings are recruited by the Public Serv­ices Commission, subject to government terms and conditions of service - and to delegations given to the Director General of each undertaking, as is the procedure prevailing in the public service generally. Recruitment in other public enterprises is by the respective boards of management although service conditions in most cases are approved by the Minister. In broad terms staff are employed on a permanent basis but, in the case of public corporations and companies, some officers are on secondment from other government organisa­tions or may be under contract for a specified time or task.

In reviews of manpower requirements by the government, the needs of public enterprises are also addressed. Generally, difficulties are encountered in obtaining qualified staff such as accountants and financial managers. This problem may be due partly to the fact that salaries and perquisites in government undertakings and corporations are less favourable compared with those obtain­ing in companies in the public and private sectors. However there is no noticeable attrition of staff from public authorities to the private sector. Move­ment of staff from one public enterprise to another is also not common nor is it encouraged. An officer must resign first, to take up an appointment in another body, but if seconded from the public service, reassignment is possible. Staff movement between government companies is not restricted, following the customary mobility patterns in the private sector.

Training for the personnel of public enterprises is usually provided by individual enterprises through in-house courses. However specialist courses in the financial and management areas are available to public sector personnel at the government-owned National Institute of Public Administration. The National Productivity Centre, which is a statutory body itself, runs other specialised courses.

1.4.    FINANCING

Funding for public enterprises in Malaysia falls into four categories, viz. own income, grants and subsidies, loans, and equity holdings. Departmental under­takings are financed from the Consolidated Fund of the government. Large undertakings, such as the Water Boards, generate more than sufficient income to meet operating costs but require additional amounts to meet capital expen­diture. Except for a few, the income received by statutory bodies from their own activities is generally inadequate. This shortfall is largely the consequence of their service-oriented nature. The larger government companies are better placed because they have to be competitive but smaller companies have difficulty in breaking even, with the result that some have to be shut down. Further, public enterprises cannot, except in exceptional cases, unilaterally decide to increase rates, fees or product prices. Such increases must be approved by the responsible Minister.

The grants and subsidies given are only to statutory corporations and for two purposes only. The first is for deficit financing and the second for meeting the costs of development projects, including investments in subsidiary and associ­ate companies. Grants are normally paid on a quarterly basis and used only for specific purposes. Any unspent balance of grants is retained by the enterprise and deducted from grants payable in the following year. These corporations may also receive subsidies from the government in the form of full or partial exemptions from payment of tax on profits. Government assets are sometimes transferred to these enterprises at no cost. There have also been cases where certain government sources of revenue have been assigned to these bodies. For example, royalties on removal of forest products in certain designated areas can be assigned to a State Economic Development Corporation. These subsidies are usually given for meeting operational and development expenses.

Public enterprises can raise loans from domestic sources in their own right, but foreign borrowings are guaranteed by the government. Most of the domestic loans are from the government or from local banks. Loans from the government are given at preferential rates of interest including some at nominal or interest free terms. Loans to companies, however, are given at market rates.

All loans must be applied to approved purposes only. Generally no rate of return on capital is prescribed for loan financed projects except for certain borrowings obtained from the World Bank and the Asian Development Bank. Where public enterprises are unable to meet their loan obligations despite rescheduling efforts, the government is liable only for those loans which were guaranteed by it. In some cases where loan repayments by companies are in default, the lender obtains the equivalent amount in shares in a debt-equity swap arrangement.

Equity participation in government corporations is provided for in some statutes and its purpose is to provide a source for obtaining initial working capital. Government participation in companies - particularly where it is the majority shareholder - is mainly for the purpose of exercising control in matters involving national policies and the national interest. Some enabling legislation prohibits statutory bodies from creating holding companies but may permit the acquisition of not more than 30 per cent equity in existing ones. Statutory bodies may, however, set up corporations under subsidiary legislation for specific purposes. The absence of such a provision in other enabling legislations has raised doubts as to whether an authority can create a holding company without a specific provision in the law authorising it to do so. Private participation in public enterprises is also encouraged to foster the cross-fertilisation of experience between private and public sectors and to promote corporate thinking in man­agement. It also provides opportunities to train Bumiputras in entrepreneurship, thus enabling them to have a share of and participate in the economy.

The government, in assisting those public enterprises which encounter financial difficulties, also keeps a close watch on their internal surpluses. Public corporations do not surrender their surpluses to the government, because such amounts are taken into account when their budgets for the following year are considered. Government companies normally return part of their annual surpluses to the government in the form of dividends.

Those public enterprises which encounter financial problems are reviewed by the responsible Minister who decides whether to salvage them by injecting additional funds or have them wound up. Where a statutory body has to be wound up, both the assets and liabilities are taken over by the government. Companies having financial problems, on the other hand, are subject to the normal processes of receivership and liquidation.

2.    GOVERNMENT CONTROLS

2.1.    MINISTERIAL CONTROL

In Malaysia public enterprises in the form of departmental undertakings, such as the Civil Aviation Department come under the jurisdiction of their respective ministers. Thus the Civil Aviation Department is the ministerial responsibility of the Minister of Transport.

As noted previously, departmental undertakings operate within the admin­istrative and financial framework of their parent department and are subject to the usual ministerial control. The powers of the Minister, in the case of the Civil Aviation Department, include the granting and revocation of licences to operate aircraft, the making of regulations for the proper conduct of aviation including tariffs and fees to be charged.

Apart from policy and related matters, departmental undertakings are controlled in their routine operations by a Director-General, or similar organisa­tion head, recruited by the government for his expertise and experience in the particular area. Such an appointment could come from the departmental structure of any branch of the Public Service.

Ministerial control is also limited in the case of statutory authorities and companies established under company legislation in which the government either has a controlling interest or owns outright. Here the relevant Minister is responsible for appointing the Chairman of the Board and determining the overall policies and activities of the organisation in accordance with the provi­sions of any enabling legislation, or of its Memorandum and Articles of Associa­tion, but is not involved in the routine administration of such public enterprises.

Ministers do not control the appointment of staff to departmental undertak­ings. This function is exercised by the Public Services Commission, subject to delegations given to the Secretary-General of the ministry - or the Director-General of the department - concerned. However the relevant Minister does have the power to appoint the Chairman and other members of the management board of statutory authorities. Similarly the nomination to the board of represen­tatives from the Treasury and other central agencies provided for in the enabling or parent legislation is made by the respective Ministers.

In the case of government owned or controlled companies, the relevant Minister appoints the members of the Board of Directors. As these companies are independent entities which operate under the Companies Act, the appoint­ment of staff, and terms and conditions of service, are controlled by the Management of each company.

The ministers associated with public enterprises in Malaysia exercise very little financial control over them, and in particular, may not direct payment of funds to any person or destination. Although the Minister does not exercise detailed financial control of departmental undertakings, he determines the policy decisions which affect finance by presenting to Parliament before the com­mencement of each financial year a statement of the estimated financial results which are expected to be achieved in that year,together with the funding and other relevant details of the proposed development programme.

Similarly, Ministers do not exercise day-to-day financial controls over statutory authorities. However, in most cases the original and supplementary estimates of these authorities require ministerial approval.

This general pattern is also discernable in the financial administration of government owned or controlled companies. Although the relevant Minister exercises very little direct control over the activities of such enterprises, the profitability of each is regularly reviewed by the Minister as he is responsible for answering any questions regarding individual performance in Parliament.

2.2.    CENTRAL AGENCY CONTROLS

In Malaysia departmental undertakings are substantially controlled by the ministries concerned in their particular spheres of activities, but ministerial control is more limited for statutory authorities and is present only at the policy level for government owned or controlled companies. Central agency controls over the appointment and dismissal of staff and their conditions of service operate for departmental undertakings, but not for statutory authorities and government owned or controlled companies. Accordingly staff appointments and dismissals in departmental undertakings are authorised by the Public Services Commission as the independent personnel agency of the government. However the conditions of service of staff employed by departmental undertak­ings are determined by a separate ministerial department, the Public Services Department.

In contrast, central agency controls are negligible in the administration of statutory authorities. Most authorities recruit their own staff but the salary scales and other terms and conditions of service determined by the particular Minister are often similar to those pertaining to the mainstream Public Service of Malaysia. Although individual authorities also have the power to dismiss their own staff, this sanction does not apply to staff seconded from ministerial departments. Such staff are governed by the terms of their secondment, prepared by the Public Services Department. Where the services of a seconded officer or employee are deemed unsatisfactory for various reasons by a particular authority, the Public Services Department may be requested to terminate the secondment, but dismissal - the prerogative of the Public Services Commission - is not an option of the authority concerned.

Central agency control is much more evident in the budgeting arrangements and accounting procedures of departmental undertakings. All budgets of de­partmental undertakings are examined by the Federal Treasury, and accounting procedures must comply with Treasury instructions (suitably modified). Treas­ury control does not extend to the budgets of statutory authorities which are approved by the relevant Minister, but Treasury holds a watching brief on the financial performance of public enterprises. The performance of individual authorities is also subject to ministerial scrutiny and, where an authority has been making continual losses, may be wound up on the recommendation of the responsible Minister. Government owned or controlled companies are similarly independent of central agency control of their budgeting arrangements. How­ever the audited accounts of these companies are sent to the relevant Minister, who monitors performance in the interests of the government.

In order to achieve the co-ordination of public enterprises, through effective institutional mechanisms at the national level, the National Development Plan­ning Committee (NDPC) was established in 1961. The NDPC was responsible originally for the formulation, implementation, progress, evaluation and revision of development plans submitted by all government agencies and public enter­prises. Consisting of the Chief Secretary to the government as chairman, and of representatives of various ministries and agencies as members, the NDPC controls the development budget and is empowered to make recommendations to the Economic Committee of the Cabinet regarding allocations for any new development projects undertaken by public enterprises. The dual aims of the NDPC are to co-ordinate activities and prevent duplication at the planning stage.

The work of the NDPC in co-ordinating at the planning stage is comple­mented by that of another planning body, the Economic Planning Unit (EPU) of the Prime Minister's Department. Before undertaking new projects, government agencies submit development proposals through their respective ministries to the EPU which processes the proposals and makes appropriate recommenda­tions to the NDPC. Overall co-ordination of the various programmes is facilitated by the representation of the EPU in the NDPC.

In 1971, following the inauguration of the Second Malaysia Plan and the concomitant expanded role of public enterprises, the necessity for a more sys­tematic approach in co-ordinating public enterprises was highlighted. Accord­ingly the National Action Council (NAC) and the Executive Committee of NAC were established to supervise the implementation of development programmes under the Second Malaysia Plan. In effect the Executive Committee of NAC became the co-ordinating vehicle for all ministerial departments as well as public enterprises. In addition to these two new agencies, the Implementation and Co­ordination Unit (ICU) was established in order to - among other things - act as the co-ordinating machinery for ministries, departments and public enterprises; to service the meetings of the Executive Committee of NAC; and to monitor the implementation of development programmes. The National Operations Room Technique used to brief the Minister of National and Rural Development on government and public enterprises projects was replaced in 1984 by the Integrated Project Management Information System (SETIA). Under this system, government departments and statutory bodies are required to submit quarterly reports to the ICU but not many of the statutory bodies submit such reports regularly. The ICU also arranges for briefing sessions in which ministries, departments and public enterprises appear before the Executive Committee of NAC to present individual progress reports covering successes and difficulties of their development projects. As a rule, these briefing sessions at which the evaluation reports from the relevant public enterprises and minis­tries are compared with independent evaluation reports by the ICU, the Execu­tive Committee makes decisions regarding the co-ordination of activities and policies of all government organisations and public enterprises.

In 1987, the Committee for Development Project Financing (CDPF) com­prising the Secretary of the Finance Division and Director of the Budget from the Treasury, representatives from the ICU, EPU and from the Ministry of Public Enterprises was established. This committee, which replaced the earlier Committee for the Co-ordination of State Economic Development Corporations (SEDC's) was given wider powers in examining loan applications and supervis­ing the granting of loans to all public enterprises and not just the SEDC's.

More specifically in the area of public enterprises, the Ministry of Public Enterprises was established in 1974 to monitor and co-ordinate the policies, programmes and projects of eight major public enterprises at the Federal level and thirteen at the State level. The public corporations for which this ministry is responsible include: The Urban Development Authority (UDA), Majlis Amanah Rakyat (MARA), Development Bank, National Padi and Rice Board, Malaysian Shipyard Engineering (MSE), Malaysian Industrial Development Finance Bhd. (MIDF), Food Industries Malaysia, and thirteen State Economic Development Corporations. The Ministry of Public Enterprises approves the annual budgets of all Federal public enterprises under its jurisdiction, but all other public enterprises remain under the auspices of their respective ministries. The ICU, however, continues to co-ordinate the policies and activities of all public enterprises by serving as the secretariat of the Executive Committee of NAC.

2.3.    OPERATIONAL FLEXIBILITY - AUTONOMY

The financial and other arrangements of departmental undertakings are governed by standard government instructions. Their budgets are scrutinised by the respective ministries and the Treasury before approval by Parliament.

The management board of a statutory body is accountable to the respon­sible Minister who in turn is answerable to Parliament on matters pertaining to the enterprise. The budget, in most cases, is approved by the Minister and in exceptional cases by the management board. These bodies have considerable flexibility in managing their own affairs except in certain areas such as appoint­ments, promotions, termination of services and in investments to some extent. The marked degree of autonomy has sometimes led to some enterprises expanding the scope of their activities which, on occasions, have overlapped the responsibilities and activities of other bodies. Such encroachments are deemed to be unavoidable and necessary for meeting the overall objectives and in supplementing related activities of the enterprise. A contrary view held is that seeming duplication of responsibilities will arise if the objectives of each enterprise are not detailed precisely and efforts made to curb the growth aspirations of some bodies.

The boards of directors of companies owned by the government are ac­countable directly to the responsible Minister and, in the case of companies owned by statutory corporations, to the Minister through their parent bodies. However, this does not impose any restrictions on company activities as they have complete autonomy and full discretionary powers except in matters of pricing of products in exceptional cases.

Public enterprises are not required by the government to earn a specified rate of return on capital. However departmental undertakings financed by foreign loans are subject to provisions of the relevant loan agreements specify­ing particular rates of return. For example, in accordance with the Loan Agreement entered into with the International Bank for Reconstruction and Development in 1968, the Telecommunication Department is required to earn a rate of return of not less than 8 per cent on the value of its net fixed assets in operation.

Although specified rates of return on capital are not applicable to statutory authorities, the government is interested in ensuring that individual enterprises do not make a loss. Government owned or controlled companies are similarly free of this type of earnings constraint, but are expected by the government to be conducted commercially and operated profitably.

All departmental undertakings and most statutory authorities are not re­quired to pay taxes applicable to government or other companies and are, in fact, specifically exempted from taxation.

Apart from taxation, the government exercises other controls which affect the pricing policies of some public enterprises. Thus the tariffs or telephone charges of the Telecommunication Department, although the same for all subscribers, are characterised by cost differentials. The cost of providing telephone services to rural subscribers is subsidised by urban subscribers while that of residential subscribers is subsidised by business subscribers. Similar intervention exists in the operations of the National Padi and Rice Board, where the sale price is controlled by the government to ensure that rice consumers pay a fair price for rice. Controls are less direct in the few government owned or controlled companies subject to price regulation, where the Government may merely indicate desirable price levels for the particular company to follow. In most other companies, market forces prevail in the absence of price controls.

No subsidies are paid to either departmental undertakings or government owned or controlled companies. However subsidies, which are shown in the Federal Budget, are paid to some statutory authorities. No public enterprises provide free or discounted services to the government, the services provided being charged at the same rates as those to other consumers.

At present in Malaysia there is a move towards the privatisation of public enterprises. It is envisaged that the private sector could take up much of the burden of financing the expansion of goods and services which have been in the past provided by the government. In addition, the revenues derived from the sale of assets or shares in public enterprises could improve governmental cash flows and provide the necessary finances for its other expenditure programmes. Another factor is that privatisation would increase efficiency becatise private shareholders would demand adequate returns and safeguards against the threat of bankruptcy more so than public ownership could provide.

The Telecommunications Department, a departmental enterprise, was re­structured and corporatised in 1987. It is still fully owned by government and is earmarked for privatisation in the future.

Present moves towards privatisation have been through the private flotation of shares or by calling for tenders for the operation of a particular service or even for the purchase of the enterprise as a going concern. In this regard, the Supreme Audit Institution (SAI) is involved only in those public enterprises which are actually audited by it and are subsequently privatised in one form or another. Here the SAI is not in a position to give expert valuations of assets and liabilities with its own resources, but ensures that competent consultants are appointed for this purpose.

3.    ORGANISATIONAL CONTROLS

3.1.    BOARD OF DIRECTORS - POWERS

Public enterprises other than departmental undertakings are controlled by Boards of Directors. In most cases Board members are appointed by the relevant Minister but in other cases, where there is specific provision in the parent legislation, appointments are made from nominated agencies which select their own representatives for appointment to the Boards.

Individual enterprises are empowered to fix the remuneration of Board members but covering ministerial approval is required. Generally the authorised rates of remuneration amongst statutory bodies compare favourably with each other but slight variations on account of local conditions, size and institutional features are found in some public enterprises.

Boards of government owned or controlled companies are able to fix the remuneration of their own members in accordance with normal commercial practice, but civil servants appointed to these Boards - and also to Boards of statutory bodies - may only retain a prescribed maximum allowance each month. This is to discourage civil servants from serving on too many Boards. Allowances paid in excess of the prescribed ceilings accrue to government revenues. There are no restrictions on other members of the Board.

The various Boards operate effectively free from political interference in all cases. Where applicable, the presence of a government-appointed member of the Board of Directors tends to ensure that individual Boards do not exceed their powers or. if they do. the Minister concerned is soon informed.

3.2.    FINANCIAL MANAGEMENT AND INFORMATION SYSTEMS

The rules, regulations and procedures for the administration of government departments are generally applicable to non-departmental public undertakings. Statutory bodies have their own set of instructions, some of which are govern­ment regulations suitably adopted for use by them. They are generally approved by the relevant Minister or Board.

To facilitate internal work arrangements, most enterprises have docu­mented their objectives, functions and procedures in manuals or have compiled directions and instructions for easy reference and use. Generally accepted accounting principles and standards are adopted for use as good accounting practice. Government directives further require corporations and companies to adopt accounting principles and standards prescribed by the Malaysian Institute of Accountants and International Accounting Standards where applicable.

Some of the enterprises have computerised information systems and others are in the process of developing them. The smaller of the enterprises have not considered computerisation a priority. Where systems are on data base, it provides a useful input to the Implementation and Co-ordination Unit (ICU) which collects, collates and updates all relevant data pertaining to the performance of as many of the public enterprises as possible in Malaysia. The system is under constant review and development to ensure improved and comprehensive coverage of all public enterprises. Although much data on the performance of public enterprises are available at various responsibility centres, the quality of the evaluation is not of a uniform standard. Performance reports are usually submitted to the appropriate ministry and boards of directors at least annually but more frequently in the case of companies. Although the reports are received by top level management thus ensuring proper attention, remedial action is sometimes slow because of reporting delays. Smaller companies generally receive less or little attention.

In 1985 a Central Information Collection Unit (CICU) was set up jointly by the ICU , the Ministry of Public Enterprises and the National Equity Corporation (PNB) to monitor more effectively the performance and financial position of government owned companies. This information system called the Public Enterprises Management and Evaluation System (PEMANES) which is main­tained by the PNB was to act as an early warning system in identifying weaknesses and problems facing these companies. For the purpose of macro analysis, general information is obtained on all companies where government equity exceeds $250,000 and detailed information is collected on those compa­nies where government holdings are in excess of 50 percent and the turnover is more than $10 million. As of September 1988, CICU had information on 1,171 companies of which 38 had been sold or privatised, 286 had either ceased operations, were under liquidation or were just 'shell' companies, leaving 847 active companies.

The Treasury has also set up a new unit, the Government Agencies and Companies Monitoring Unit, with the sole purpose of identifying weaknesses and investment constraints in government companies. The unit which gets feedback information from CICU has identified poor management, under-capi-talisation and weak demand for products causing cash flow deficits, as some of the problems facing public enterprises. Broad measures proposed to overcome these problems include the injection of new funds, particularly additional equity to rationalise the debt-equity structure of these bodies and pave the way for privatisation where appropriate.

Since the SAI has no audit responsibilities for companies, it is not possible to comment on the quality of their financial management. However, the large public companies in Malaysia are said to be well managed and administered. In the other enterprises, positive efforts are being made to improve financial management. The SAI has been supportive in this area, offering training programmes and preparing accounting and related manuals. The SAI has also assisted some enterprises in the establishment and development of internal auditing by seconding experienced staff to implement this function.

3.3.    ACCOUNTING STANDARDS

The responsibility for financial and accounting procedure relating to public enterprises (except government-owned companies) vests in the Minister of Finance through the Treasury. It is the duty of the Treasury to issue instructions and directions on accounting matters and procedures, monitor that proper systems of accounts are established and ensure that procedures comply with generally accepted accounting principles and standards. In the case of departmental undertakings these duties are delegated to the Accountant General as senior accounting officer of the Treasury. Statutory bodies are required by their enabling legislation to keep accounts in accordance with commercial practices, but tend to follow the accounting concepts, principles and guidelines of government accounting. In March 1985 the Treasury issued "Guidelines for the Form and Standard of Financial Statements of Statutory Bodies", based on guidelines prepared by the SAI, with provision for periodic review. Incorporating accounting concepts, policies and broad norms for published financial statements, these guidelines were intended to establish a uniform accounting standard for all statutory bodies, provide a clear picture of their financial position, standardise the application of accounting principles recognised by professional bodies, and further enhance the standard of ac­counting and preparation of financial statements.

Government companies, on the other hand, follow rules and regulations in keeping with the broad requirements of their Memorandum and Articles of As­sociation and - in common with other companies - the statutory provisions of companies legislation. They must also follow standards issued by the Malaysian Institute of Accountants, which is the national standard setting body.

The form of the financial statements of public enterprises is not subject to the approval of the SAI. In the case of departmental undertakings, the Accountant

General determines the final form of the financial statements kept by each under­taking. In the case of statutory authorities, however, individual enterprises are responsible for the form of their own statements, but since 1985 are required to follow the "Guidelines for the Form and Standard of Financial Statements of Statutory Bodies" issued by the Treasury. Government owned or controlled companies are subject to the Companies Act which prescribes the requirements which have to be met except that in the case of subsidiary companies of statutory bodies, the above guidelines of the Treasury are required to be followed as long as there is no conflict with the requirements of the Companies Act and associated rules and regulations.

The SAI does not participate in the preparation of financial statements. This is the responsibility of the public enterprise concerned, irrespective of its type.

4.    LEGISLATURAL CONTROLS

The legislature in Malaysia operates a number of controls in relation to public enterprises. All statutory bodies established by Federal law are required by statute to submit their accounts for audit within six months of the end of the financial year. The law also requires that the Minister concerned shall ensure that the audited accounts together with the audit report are tabled in Parliament as soon as possible. However these provisions are not applicable to government owned or controlled companies.

4.1.    BUDGETS

Departmental undertakings receive parliamentary appropriations in the same manner as all other departments. Budget proposals submitted to the parent Ministry are vetted before being examined and processed by the Treasury for inclusion in the Supply Bill. The budgets of public enterprises are approved by the relevant Minister, but allocations for development projects require the consent of the Economic Planning Unit (EPU) of the Prime Ministers Department, and the National Development Planning Committee (NDPC) before submission to the Economic Committee of the Cabinet for approval. Although the legislature does not review the budgets of statutory bodies, where large contributions, grants or other funding are given from voted provisions, questions are often asked in Parliament when the annual Supply Bill of the government is debated.

Government owned companies do not come within the ambit of the budgetary processes designed for statutory bodies. They exercise complete autonomy but are subject to the normal processes of parliamentary debate which promote the accountability of public enterprises. Ministers may be ques­tioned in Parliament on any matter coming within their particular spheres of responsibility, either orally or in writing, and answers are required to be given accordingly.

4.2.    LEGISLATURAL COMMITTEES

In addition to parliamentary questions, the legislature controls public enter­prises through a select committee of Parliament, the Public Accounts Committee (PAC). The functions of the PAC are to examine the reports of the Auditor General, obtain evidence from witnesses and make recommendation for correc­tive action. The effectiveness of this control tends to be weakened by the exclusion of the public from relevant hearings, as investigations by the legisla­ture and its committees are always held in camera. In the case of the PAC, control is further weakened by procedural defects. Where members lack detailed knowledge of government policies, procedures and accounting meth­ods or do not brief themselves on the issues at hand, then the examination of witnesses is often perfunctory rather than thorough. Apart from these operating factors which militate against the effectiveness of parliamentary control of public enterprises, it is becoming more difficult for the PAC to pay adequate attention to the reports of the SAI because of the increasing number of reports now being tabled in Parliament. In view of this marked increase, the PAC has to be very selective in examining reports. In fact, only about five percent of the total number of reports on public enterprises are examined annually, with the remainder being examined in rotation in subsequent years. Those reports selected for examina­tion in a particular year are discussed and reported on by the PAC within a reasonable but unspecified time. The processing of reports, now curtailed by sheer volume and resource constraints, could possibly be accelerated by more frequent meetings of the PAC or by the establishment of a special parliamentary committee to handle these reports on public enterprises.

The SAI assists the PAC in its examination of the various reports by advising on the selection of the matters for discussion, and on the lines of enquiry to be followed. Also, in each case, the relevant report of the PAC is actually witten by the SAI. Representatives of the SAI are present at all sittings of the PAC, but participate in the discussions only to the extent of replying to questions put by the PAC and of clarifying comments made in the particular audit report. The SAI assists the members of the PAC in formulating their findings and examines the further replies and clarifications given by the statutory authorities or departmen­tal undertakings on the findings in the report of the SAI.

Although the proceedings of the PAC are not open to the media, members of the public may keep themselves informed of such proceedings by referring to Hansard (the official record of parliamentary proceedings) which publishes reports of the PAC. These reports are tabled in the House of Representatives, but no time limit is prescribed. The reports are not discussed and adopted in Parliament, but its members can raise pertinent issues at question time or during the budget debate. The Treasury is responsible for ensuring that the recommen­dations of the PAC are implemented. Where these recommendations are not complied with, the SAI mentions this omission in subsequent audit reports so that the PAC is able to monitor compliance with its recommendations.

As regards companies in which the government has a majority interest, control by the legislature is negligible. The net results of these companies are often hidden in the consolidated accounts of other companies or enterprises, while there is no legal requirement that the audited accounts of government owned or controlled companies be tabled in the legislature.

The media has the potential to assist the legislature in maintaining the ac­countability of public enterprises by publicising important issues in this area. However, the media as a matter of policy refrain from addressing issues deemed by the government to be sensitive or prejudicial to the national interest.

Where effective control by the legislature breaks down, a degree of public accountability is achieved by the submission of the reports of the SAI on public enterprises to the legislature and subsequent consideration by the PAC. Further accountability is achieved by parliamentary control of borrowings. In most cases the approval of the Minister of Finance is required in the first instance. As departmental undertakings and statutory authorities borrow mostly from govern­ment sources, such loans are often voted by Parliament, with the foreign loans being obtained through the Government. In the case of government owned or controlled companies, however, the legislature cannot exercise control over borrowings.

5.    AUDIT OF PUBLIC ENTERPRISES

5.1.    ROLE OF THE SUPREME AUDIT INSTITUTION

As the Supreme Audit Institution, the Auditor General Malaysia is the external auditor of all departmental undertakings and statutory authorities, but has no direct relationship with government owned or controlled companies. Although the SAI does not act as a consultant or advisor to the management of public enterprises, suggestions for improvements and related issues may be made by the SAI during the course of its audit. However management has sole responsibility for initiating, implementing and maintaining any consequential changes.

The SAI has no authority to correct decisions of management or to give instructions to management. Deficiencies in the management of departmental undertakings and statutory authorities may be corrected in three ways.

  1. On receiving the SAI's report, management itself initiates action to over come the deficiencies reported.
  2. The Ministry responsible, which also receives the SAI's report, keeps reviewing these deficiencies and ensuring that action is being taken to overcome them.
  3. In intractable cases the SAI refers the lack of progress in overcoming the deficiencies to the Public Accounts Committee, which in turn makes recommendations which have to be implemented. Representatives from the Ministry concerned and from Treasury are present at these hearings and are responsible for follow-up action on the part of the public enterprise involved.

5.2.    TYPES OF AUDITS UNDERTAKEN AND AUTHORITY

In the-role of external auditor of departmental undertakings and statutory authorities (but not of government owned or controlled companies) as outlined above, the SAI is authorised under the provisions of the Audit Act 1957 to undertake financial, compliance and performance audits. The authority to audit departmental undertakings also derives from the Audit Act 1957, and in the case of the audit of statutory authorities additionally by the Statutory Bodies (Accounts and Annual Reports) Act 1980.

In the audit of departmental undertakings, the SAI undertakes the work directly without recourse to commercial auditors. In the audit of statutory authorities, however, some enterprises are audited directly by the SAI but others are audited by commercial auditors. These commercial auditors are appointed by the SAI to undertake audits on its behalf and are required to submit the accounts of the enterprises concerned, together with the audit working papers and audit findings, to the SAI for review and certification. In both the above cases involving the audit of statutory authorities, the final audit reports are signed by the SAI.

The audits of subsidiary companies owned or controlled by the government are normally carried out by commercial auditors appointed by the Board of Directors under the provisions of the Companies Act. Where a commercial auditor is appointed, Parliament exercises a measure of control over the companies through the indirect monitoring role of the SAI. The privately audited accounts of subsidiaries owned or controlled by the government may be called for by the SAI who comments on any unfavourable aspects. Such comments are embodied in the SAI's report to Parliament on the consolidated accounts or in the relevant report of the Ministry concerned.

More direct control, however, may be exercised by the SAI in regard to those companies with close financial links with the government. Accordingly, the Audit Act specifically provides that the SAI may audit companies if they are in receipt of grants or loans from the government, or where more than half their share capital is held by the government and/or its agencies. This must be specified by order of His Majesty the King.

The above auditing arrangements are also applicable to the subsidiary com­panies of government owned or controlled companies, and to subsidiaries of statutory bodies. Further, the audited financial statements of government owned or controlled companies are not required to be tabled in the legislature. The accounts of subsidiary companies are consolidated with those of the parent body but, similarly are not required to be presented to Parliament.

5.3.    OBJECTIVES AND SCOPE OF AUDITS

The specific objectives of the audit of public enterprises by the SAI, in common with audits of ministerial departments, are:

  1. to audit and report through its findings to the agencies concerned and to Parliament on the management of public funds by the Federal and State Governments and statutory bodies under audit;
  2. to ensure that in all cases proper accounts are maintained in accor dance with generally accepted accounting principles by the entities concerned to enable the SAI to give an opinion on their veracity;
  3. to ensure that public funds are managed in accordance with the respective laws, rules and regulations in force; and
  4. to contribute towards enhancing the standard of accountability in the public sector.

The above objectives are specified in the Audit Act 1957 which outlines the scope of each type of audit, irrespective of whether the audits are undertaken by the SAI's own officers or through commercial auditors.

(i)    Financial Audit

Financial audits are undertaken to enable the SAI to express an opinion as to whether the financial statements truly and fairly reflect the financial position of the public enterprise concerned at a given date. For this purpose, the Audit Act requires the SAI to ascertain:

  1. whether all reasonable precautions have been taken to safeguard the collection and custody of public moneys or other moneys subject to audit;
  2. whether issues and payments of audited moneys were made in accor dance with proper authority and payments were properly chargeable, and are supported by sufficient vouchers or proof of payment;
  3. whether due care has been taken to account for and ensure the proper use, control, maintenance and disposal of all public stores or other stores subject to audit;
  4. whether all accounts and other records have been and are properly and faithfully maintained; and
  5. whether in the opinion of the SAI moneys have been applied to the purposes for which they were appropriated or authorised and the activities related to such purposes were carried out or managed in an efficient manner with due regard for economy and the avoidance of waste or extravagance.

These financial audits for the purpose of forming an opinion on the accounts are carried out routinely in accordance with the approved annual audit plan.

(ii)    Compliance Audit

The purpose of the compliance audit, which is undertaken in conjunction with the financial audit, is to ensure that all financial operations have been carried out in compliance with statutory, regulatory and administrative requirements. Specifically, the Audit Act requires the SAI to establish whether the provisions of the Federal Constitution, and any other written law relating to moneys or stores subject to his audit, have been complied with in all respects.

(iii)    Performance Audit

The Audit Act further requires the SAI to ascertain whether in its opinion moneys have been applied to the purposes for which they were appropriated or authorised and the activities related to such purposes were carried out or managed in an efficient manner with due regard for economy and the avoidance of waste or extravagance. This type of audit is a complete assessment of an organisation, its plans and objectives, methods of control, operational activities and use of resources. The performance audit includes an evaluation of the pro­grammes and activities to ascertain whether they were managed economically and efficiently. Performance audits are carried out on a cyclical basis and independent of the routine financial and compliance audits of departmental undertakings and statutory authorities.

5.4.    INTERNAL AUDITS

Although there is no general statutory requirement for public enterprises in Malaysia to have an internal audit function, it is not uncommon for the larger enterprises to establish and develop such a function as an essential part of their activities.

Managements of individual enterprises are responsible for the organisa­tional structure of their internal audit units and other aspects of the relevant internal control system. The nature and extent of the controls used will depend on the type, size and volume of the transactions, the degree of control which management is able to exercise personally, and other organisational factors. The choice of controls, as elsewhere, may reflect a comparison of the cost of op­erating individual controls with the resulting benefits.

Internal controls in public enterprises can be evaluated more effectively if they are prepared and reviewed by a professional internal audit unit which is independent and reports direct to top management. By arrangement, the SAI is given copies pf the audit programmes of the internal auditors in order to check the coverage and adequacy, and ensure that unnecessary duplication is avoided. Internal audit reports are also made available to the SAI.

The extent to which the SAI is able to rely on the work of the internal auditor depends on the former's assessment and evaluation of the effectiveness of the internal audit function. In judging effectiveness, the SAI is concerned with:

  1. the degree of independence of the internal auditor;
  2. the number of suitably qualified and experienced staff employed in the internal audit unit;
  3. the scope, extent, direction and timing of the tests made by the internal auditor;
  4. the evidence available of the work done by the internal auditor, and the review of that work; and
  5. the extent to which management takes action based on the reports of the internal auditor.

Provided that the relevant internal auditing work has been carried out effectively, the SAI may be able to reduce the level of its tests.

In practice, the effectiveness of the internal control function in Malaysia's public enterprises varies to some extent. In some of the departmental undertak­ings, internal audit has not been strong but in others this function is quite satisfactory. In the case of government owned or controlled companies, internal audit has been generally effective.

Where the SAI is of the opinion that the internal audit function is not effective, the way is always open for it to comment on the quality of the internal audit in its annual report to the legislature. A more constructive approach has been adopted by the SAI in circumstances where, on request, secondments of experienced audit staff to public enterprises have been made to improve standards of internal auditing. However most of the training of internal auditors in public enterprises is essentially on-the-job, but those who are members of ac­counting bodies have the opportunity to participate in continuing professional education programmes.

Neither departmental undertakings nor statutory authorities have audit com­mittees to advise on internal auditing procedures and generally oversee the auditing function. Some government owned or controlled companies, however, have appointed audit committees to advantage. In no cases have commercial auditors been engaged to perform the internal audit function.

5.5.    USE OF COMMERCIAL AUDITORS

The SAI has the power to engage commercial auditors on contract. This power is exercised by the SAI more commonly for statutory authorities. In these cases, the SAI has recourse to the resources of the major firms of public accountants. The SAI does not have the power to engage commercial auditors for the audit of government owned or controlled companies.

Where the SAI engages commercial auditors on contract for public enter­prises, the relevant letter of engagement specifies the scope of the audit, usually in accordance with the proposals for audit submitted by the audit firm. Commer­cial auditors appointed by the SAI are also required to work under its directions. The reports of these commercial auditors - together with their working papers, questionnaires, programmes and other material documents - are examined by the SAI to assess the effectiveness of the quality of the audit. On the basis of this examination, the SAI prepares its own reports on the public enterprises in question for tabling in Parliament.

Public enterprises in the form of departmental undertakings are not empow­ered to appoint a commercial auditor rather than be subject to audit by the SAI. The position was markedly different for statutory authorities prior to 1981, when these forms of public enterprise were empowered under the provisions of their individual enabling legislation to appoint either a commercial auditor or the SAI. However the Statutory Bodies (Accounts and Annual Reports) Act 1980 made it mandatory for the accounts of all statutory authorities to be audited by the SAI. Public enterprises operating as companies are empowered to appoint commer­cial auditors under the Companies Act and do so as a matter of course. The types of audits conducted by these commercial auditors are financial and compliance, but performance audits are not specifically authorised under the Companies Act.

5.6.    AUDIT METHODS AND TECHNIQUES

The audit methods and techniques employed in the financial and compli­ance audits of public enterprises are no different from those used in the audit of other public sector organisations in Malaysia. The methods and techniques are based on either the examination of documents and transactions and/or of systems, with the view to assessing propriety and compliance and evaluating the effectiveness of internal controls. For these purposes standard audit programmes and internal control questionnaires have been prepared for the examination of key variables. Audit sampling is also used, with the emphasis on judgment samples subject to a generally approved minimum sample size for each type of accounting transaction or record.

The financial and compliance audit generally includes analysis and enquir­ies into any material movements of items in the financial statements compared with previous years and the budgeted figures, and the evaluation of trends disclosed by the accounts. Financial ratios are used in the analysis and evaluation, and these are particularly significant in the analysis of the accounts of companies and their subsidiaries which are owned or controlled by the gov­ernment but are not subject to audit by the SAL Comments on the loss or profitability of audited public enterprises are included in the audit report on the accounts.

Generally, the financial and compliance audit is systems- based, suitably modified to meet the needs of the particular public enterprise being audited. This approach entails studying and ascertaining the enterprise's accounting and internal control systems, documenting the systems, executing compliance tests, evaluating the systems and where necessary conducting substantive tests and analytical reviews to determine whether the prescribed accounting and internal control systems actually exist, are reasonably sound, and are being complied with throughout the year. These procedures, which enable the auditor to form an opinion on the reliability of the accounting system to record the various transactions accurately, are conducted during the interim stage of the audit.

The audit methods and techniques employed in the performance audits of departmental undertakings and statutory authorities undertaken by the SAI are outlined in the Performance Audit Manual of the SAI. Four phases are involved:

  1. overview phase in which the auditor familiarises himself with basic in­formation concerning the public enterprise being audited;
  2. survey phase, in which certain areas are identified for test examinations on a sample basis to determine whether implementation is as required; goals and objectives can be achieved; performance is being affected by deficiencies; economy, efficiency and effectiveness are being eroded; and proper and reliable documentation and reports exist;
  3. detailed audit phase, in which matters of potential significance (MOPS) are developed as definite findings for purposes of reporting and making recommendations; and
  4. reporting phase, in which the audit team prepares the audit report which is finally published by the SAI after considering all matters raised by the auditee.

5.7.    ORGANISATIONAL MANAGEMENT FOR AUDIT

The audit of public enterprises is undertaken by the Public Enterprises Division of the SAI. This special division, which has an establishment of some 250 officers, is headed by an Assistant Auditor-General, a Director of Audit and three Assistant Directors of Audit. The Assistant Directors themselves are responsible for the direct supervision of a few of the largest public enterprises. They also oversee the work of those commercial auditors who undertake audits of public enterprises on behalf of the SAI, and oversee the work of subsidiary branches of the division.

Each branch of the Public Enterprises Division is headed by either a Principal Auditor or Senior Auditor, responsible individually for the direct supervision of the audits of a number of public enterprises. Permanent audit staff of the SAI are stationed in the offices of the various public enterprises where continuous audits are undertaken but, where the work involved does not warrant full-time continuous audits, officers from SAI headquarters make periodic visits to conduct interim and/or final audits as required.

Specific audit guidelines, which cover all the general and common aspects of balance sheet audits, are issued by the SAI for the conduct of the audits of public enterprises. In addition, there are other audit guidelines for those enterprises which have special features, particularly the procedures and stan­dards laid down in the Performance Audit Manual of the SAI.

Specially trained and qualified staff are engaged in the audit of public enter­prises. The staff are recruited from various disciplines but are given adequate training in accounting and auditing before they are confirmed in their appoint­ments. As many of the accounting systems in public enterprises are computer­ised, all audit staff are given basic training - and selected officers, advanced training - in the audit of computerised systems. Audit software packages including test packs, have also been obtained and used for accessing data in a manner most meaningful to the auditor. Consequently, many procedures traditionally performed on a test basis can be extended to the entire population, resulting in a marked increase in audit scope.

5.8.    PERIOD AND FREQUENCY OF AUDITS

The SAI is required to audit and report on the financial statements of public enterprises annually. The audit of transactions is continuous in the case of major enterprises, but takes place on an annual basis only after the signed statements are received from the auditee in the case of minor enterprises.

In addition to the annual audit of the financial statements of public enter­prises, each year the SAI selects some enterprises to be audited on their performance. These performance audits are in the nature of special assign­ments for the audit teams involved and, as noted previously, are subject to auditing methodologies different from those normally adopted for financial and compliance audits.

5.9.    AUDIT REPORTS

The reports of the SAI on departmental undertakings and statutory authori­ties are addressed to the public enterprise concerned, which in turn is required by law to ensure that the reports are then tabled in Parliament. In contrast, the reports of commercial accountants on the accounts of public enterprises which operate as companies under the Companies Act are not required to be presented to the legislature.

In the early days of public enterprises in Malaysia, the findings and opinion of the auditor - who was not always the SAI - on the annual accounts of public enterprises were in the form of either a 'report' or 'observations' as specified by the respective laws establishing the public enterprises. Some of the reports or observations of the auditor were required to be tabled in Parliament while others were not. These inconsistencies were eliminated with the promulgation, of the Statutory Bodies (Accounts and Annual Reports) Act 1980, which provided that the accounts of all statutory authorities be audited by the SAI and that his reports be presented to both Houses of Parliament as soon as practicable by the Minister concerned. Under this new legislation, the audit report of the SAI -together with the authority's annual report on its activities - are required to be submitted to the Minister within one month of the receipt of the audited statements. After tabling in the legislature, the audit report of the SAI is referred to the Public Accounts Committee, which reviews it and makes appropriate recommendations.

There is no statutory time limit in which the annual reports of public • enterprises in the form of departmental undertakings must be presented to Parliament. Similarly, although statutory authorities are obliged to submit annual accounts for SAI audit within six months of the close of the financial year, there are no specified time limits for the ministerial tabling of the audited statements in the legislature.

In the case of performance audits, the results of the audit examination may be incorporated in the report of the SAI on the annual accounts. However, where warranted by the scope of the performance audit and the nature of the findings, the relevant report may be printed separately from the audit report on the financial statements and tabled separately also in Parliament.

With existing reporting procedures, there is a possibility of reports of the SAI being unreasonably delayed between the date of signing by the SAI and the date of tabling in Parliament. Signed reports are sent to His Majesty the King who directs the Prime Minister's Department to table the reports as early as possible in Parliament. Procedurally, the Command Paper Number for each report is given by the relevant division of the Prime Minister's Department and not by the Parliamentary Secretariat. Reports, too, are usually submitted to Cabinet before tabling. Consequently, any omission in numbering the report by the Prime Minister's Department or in presenting the report to Cabinet may cause undue delays. In order to safeguard itself and uphold accountability to Parliament, the SAI takes the precaution of including in its report the transmittal letter to His Majesty, so that the source of any delay is evident to Parliament.

5.10.    UTILISATION OF AUDIT FINDINGS AND REPORTS

The audit reports of the SAI on public enterprises are followed up by the Public Accounts Committee. The members of the Committee examine each report and question senior officials of the enterprise concerned regarding any adverse or otherwise significant findings of the SAI. There is a verbatim record of questions asked by members and answers given by officials.

The Public Accounts Committee publishes a report of its own after the ex­amination of the officials is completed and this report may embody recommen­dations of the committee. In turn, these recommendations are followed up by the SAI in his subsequent reports to ensure that they are complied with by the public enterprise concerned.

6.    ISSUES AND PROBLEMS

The Malaysian Constitution provides for two consultative bodies at national level, viz. the National Finance Council (NFC), chaired by the Prime Minister, which deals mainly with financial matters and other arrangements between the Federal and State governments; and the National Council for Local Government (NCLG). In 1957 when the Constitution was framed, there was no need for a consultative body for public enterprises. However, the growth and size of public enterprises since then, the public funds invested in them and the commercial nature of their activities, have raised numerous accountability considerations - particularly in matters relating to or­ganisational autonomy, administrative flexibility and financial control. In 1980 the SAI, sensitive to these issues, proposed the establishment of a National Council for Public Enterprises which would formulate national policies for the promotion, development, financing and control of public enterprises throughout Malaysia - and for the administration of any laws relating thereto. The new organisation would function in a similar fashion to the two existing constitutional bodies mentioned previously - the National Finance Council and National Council for Local Govern­ment. The government subsequently rejected the proposal on the grounds that an adequate mechanism existed in the NFC for consultation, discussion and oversight of public enterprises. Although, in the thirty-year history of the NFC, public enterprises have been rarely, if ever - discussed, there has always been the fear that the creation of a new body along the proposed lines could erode ministerial authority and responsibility over enterprises which are now solely under ministerial jurisdiction and control.

One of the criticisms levelled at public enterprises is the vagueness of their objectives. The articles of incorporation or the statutes which establish the enterprises, often describe objectives in brief and general terms with the result that functions tend to overlap among some enterprises, particularly in socio-economic activities.

In addition to creating problems of co-ordination, deviations from the intended role, functions and objectives of the enterprises concerned could cast doubts as to whether their existence justifies the burden on the public purse. Furthermore, with the proliferation of public enterprises in Malaysia from 15 in 1957 to about 1345 in

1988, the government would need to have an extensive monitoring system to track their performance. At the moment only about 5 per cent of public enterprises are monitored centrally. This 5 per cent represents bodies which account for a large proportion of public expenditures and are generally considered to be organisation­ally efficient. The remaining enterprises not subject to central monitoring are evidently not receiving adequate attention and should come under closer scrutiny. Holding companies of statutory bodies fall in this category and, although not subject to audit by the SAI, their audited accounts are seen only when the parent body is audited. Poor performance and other deficiencies are reported to management and the legislature but the numbers reviewed are still small. According to the 1988-1989 Economic Report of the Malaysian Ministry of Finance, the total paid up capital of the 847 active companies was $19.7 billion of which government equity amounted to $13.8 billion or 70 percent of the total paid up capital.

Another general observation on public enterprises, particularly with statutory bodies, is that they lack trained manpower in depth in the financial and accounting areas. As these bodies draw their staff from the government, the expertise available is stretched thin. Moreover, the lack of commercial orientation in such staff could cause problems in managing a business enterprise. These shortcomings manifest themselves in inferior record keeping, delays in the submission of accounts, and sub-optimal operating performance.

Evidence suggests that, although the government recognises the importance of closely supervising the performance of enterprises, they are far too numerous to allow constant surveillance, with the result that many are performing poorly. This issue could be addressed by the establishment of audit committees as part of their corporate strategies in ensuring accountability, but such committees are confined to large government owned companies - and only two statutory bodies. Overall, less than one per cent of public enterprises have audit committees.

Finally, one of the major accountability concerns in Malaysia is that the SAI does not audit the accounts of government owned companies. Although an amendment to the Audit Act in 1981 provided for the SAI to audit such bodies if so directed by His Majesty the King, this provision has never been invoked, while the audited accounts and reports are not tabled in Parliament. Accordingly the considerable public investment in these bodies is not subject to adequate parliamentary and public scrutiny. According to the Economic Report 1988-1989, from available audited accounts, 387 companies recorded accumulated profits of $4.6 billion, while 383 companies suffered accumulated losses of $5.6 billion. Questions raised in Parlia­ment on these bodies sometimes receive brief and perfunctory replies which do not in any way help enhance the cause of accountability.