Public works and projects refer to construction activities of all kinds that are undertaken by the government in the public interest. These activities lead to the creation of tangible assets such as drainage, irrigation and dams, railroads, roads and bridges, ports and buildings. However, industrial projects - such as fertiliser, steel, oil and petroleum undertakings - are excluded.
The objectives of the current research project of ASOSAI focus on the institutional framework for undertaking public works and projects in member countries. Related aspects - such as project approval, financing and accounting systems and project implementation - will be studied, along with the scope, objective, organisation and methodology of the external audit function conducted in each case by the SAL
3.1. Under the First Outline Perspective Plan (OPP1) of the Government of Malaysia, covering the period 1971 -1990, four development plans were implemented, i.e. from the Second Malaysia Plan (1971 - 1975) to the Fifth Malaysia Plan (1986 - 1990). These development plans were implemented within the provisions of the New Economic Policy (NEP) introduced by the Government of Malaysia in 1970 with the objective of fostering national unity through the reduction of economic disparities between the constituent ethnic groups.
3.2. The Second Outline Perspective Plan (OPP2), covering the period 1991 - 2000, is based on the New Development Policy (NDP) which has been formulated in the light of the achievements and experiences of the OPP1. This second planning initiative (OPP2) is expected to accelerate the process of eradicating poverty and restructuring society in order to correct social and economic imbalances.
3.3. The New Development Policy (NDP) will rely more on the private sector to be responsive and pro-active in the attainment of national socio-economic objectives. This role devolves to the sector requiring a greater sharing of social responsibility in managing growth for the generation of sufficient opportunities for equitable distribution of benefits among all Malaysians. The public sector (consisting of federal, state and local governments and various statutory authorities) will support these efforts by focusing on further improving the environment for growth and the provision of adequate social and physical infrastructures. To ensure that the objectives of the NDP is achieved, it is pertinent that the necessary infrastructure is made available at the correct time and in the correct place.
Public works and projects in Malaysia can be classified according to the following categories:
(a) Investment required for government administration purposes :
(b) Investment in projects to promote social welfare and economic development including social and economic infrastructure :
As mentioned earlier, the Malaysia Second Outline Plan covering the period 1991 - 2000 is based on the New Development Plan (NDP). The NDP is geared towards the acceleration of the process of eradicating poverty and restructuring society in order to correct social and economic imbalances.
In Malaysia, prior approval of the Prime Minister's Department is required to undertake any feasibility studies.
The implementation of public works and projects is subject to a process of authorisation at various levels in the interest of control and responsibility :
All projects are initially approved under the National Development Plan which is scrutinised by the agency responsible for Policy, Planning and Implementation. Subsequently, ministerial and departmental annual budgets are subject to approval by the Ministry of Finance and Cabinet. Only when the budget is approved by Parliament do the funds become available for spending.
The financing of development expenditure in the current Malaysia Plan is by means of a combination of current account surpluses of the Federal Government, domestic and foreign borrowing and proceeds from investment and sales of assets. The total development allocation approved for the Sixth Malaysia Plan was RM5 5,704,779,096. Out of this, RM29,3 77,196,774 had been spent as at 31 December 1993.
In Malaysia, Federal Government expenditure is classified in the national budget as operating or development. Controlling Officers are appointed to manage and be accountable for funds under the various expenditure purposes of the budget. To ensure the efficient management and accountability of public expenditure, the Federal Government has introduced the Modified Budgeting System (MBS). Under MBS, an expenditure target is set for each department's annual budget. A programme agreement for each programme outlining the objectives, resources required, programme outputs and impact indicators - is prepared by the department involved. Each programme agreement must be approved by the relevant central agency. The performance of each programme is evaluated against targets or standards set at least once every five years by top management and Treasury officials. Initially, all Federal Government operating expenditure is subject to the MBS. Compliance with various financial and accounting rules and regulations ensures that there are adequate controls and checks for expenditure incurred.
In Malaysia, the Public Works Department (PWD) is responsible for the development, planning, design, construction and maintenance of public roads (other than highways for which the Highway Board is responsible), bridges, public water supplies, common-user buildings and government quarters for the Ministry of Works. In addition, the PWD is entrusted with responsibility for the design and construction of projects for all other government departments and ministries. The design and construction works may either be undertaken internally by the PWD or contracted out to consultants or contractors. In practice, most design work is prepared by the PWD but construction work is carried out by contractors.
7.2.1. Preparation of Detailed Designs and Bills of Quantities
After the client department or ministry has given its approval for the preliminary design and site layout plan and confirmed that funds are available, the particular agency involved in the implementation phase proceeds with soil investigation and detailed architectural and/or engineering design. As the detailed design work progresses, the contributions of individual designers from different disciplines are effectively co-ordinated. The requirements of the relevant planning, utility and local authorities are incorporated into the design, while the design is complete in all respects prior to the invitation for tenders. The relevant bills of quantities are prepared in accordance with established standards.
7.2.2. Preparation of Tender Documents
Unless the work involved is estimated to cost less than a specified amount, tender documents are prepared and tenders invited. The contract is based on either drawings and specifications or bills of quantities. In preparing the tender documents, standard specifications are commonly used. A full set of tender documents - comprising contract conditions, tender and other relevant forms, specifications, bills of quantities and drawings - is publicly displayed and made available for the perusal of potential tenderers during the course of the tender period.
7.2.3. Invitation and Evaluation of Tenders Including Types of Tenders and Prequalification of Tenders
Tenders can be classified according to the following categories :
- Open tender
- Restricted tender - Prequalification
- Selective
- Negotiated tender.
Where open tenders are followed, adequate publicity is given to ensure wide participation. During the technical and financial evaluation of tenders and throughout all aspects of the tendering process, strict confidentiality is observed.
7.2.4. Award of Work
In the final stage of the tendering process, appointed members of the Tender Board select the successful tenderer giving due regard to technical and financial considerations. After approval by the Tender Board has been obtained, the relevant Letter of Acceptance is issued.
7.2.5. Supervision
The administration of the contract is the responsibility of the Superintending Officer (SO). The execution of the work is supervised by the SO's representative who has delegated powers to act on specific matters. Where necessary, matters relating to the contract and execution of work are referred to the SO for a decision.
The funds provided for and utilised by government ministries and departments on public works and projects are accounted for according to budgetary classifications. Public enterprises allocate funds for spending of this nature from their own resources or from periodic budgetary appropriations of the government. The accounts of the public works and projects involved are included in the respective accounts of the government departments and public enterprises and are therefore subject to the reporting systems of those organisations. Auditors systematically evaluate the nature and operation of internal controls relating to public works and projects to assess the extent to which such controls may be relied on to :
Quality control is imposed by the supervision of work during implementation by competent personnel. Auditors also assist in quality control by ensuring that the auditing operations and audit reports are completed well before the defects liability period of the contract expires, so that contractor can be asked to cany out any necessary remedial works.
Project monitoring is carried out continuously by the relevant authorities to ensure that the project is being undertaken in accordance with the provisions of the works programme.
The procurement of construction machinery and equipment are subject to government financial rules and regulations. Wherever work is contracted out, it is a common practice for construction machinery and equipment to be included as an item in the bills of quantities. Where this is done, auditors are required to verify that the construction machinery and equipment are supplied promptly, the cost is reasonable and the ownership of such assets on completion of the work involved has been stipulated in the contract and subsequently complied with.
The procurement of construction material is the responsibility of the contractor. Certain materials - such as cement, steel, petrol and oil, which are subject to frequent price fluctuations - are covered by a price variation clause in the contract. Contractors are also paid 75% of materials on site in their progress payments.
The management and control of public works implementation is the responsibility of the particular government ministry/department, town board, district council or public enterprise. However, it is a prerequisite for agencies which do not have the necessary technical expertise to provide funds to the Public Works Department for the implementation phase. In addition, the implementation of all projects requires prior approval of the Economic Planning Unit.
The operation, maintenance and utilisation of public projects is the responsibility of the agency from which a particular project is funded.
Public enterprises do not carry out public works contracts directly. However, some subsidiary companies of public enterprises do participate in tenders for public works.
In 1985, the government embarked on a privatisation policy with the view to reducing its financial burden. Since the inception of this policy, many public works and projects have been privatised.
All foreign aid received for public works and projects are channelled through the normal budgetary process. However, the funding agencies generally enter into agreements with the implementing agencies and stipulate conditions to be complied with. While observing the rules and regulations of the government, conditions laid down by the lending agencies are also observed by the implementing agencies.
12.1. Oversight by the Funding Agencies Including the Approval of Bids, Oversight covers the following:
As mentioned in the above paragraph, the implementing agencies responsible for foreign-aided projects are required to submit quarterly and annual physical and financial progress reports of the various projects. Implementing agencies are also required to provide audited financial statements to the respective lending agencies.
The Audit Act 1957 gives the Auditor-General of Malaysia the mandate to audit the accounts of:
14.1. In conducting the audit of public works, the following are the audit objectives:
Each year many construction projects are in the process of implementation throughout Malaysia, with the cost of each construction project ranging from thousands to billions of dollars. As it is uneconomical to audit all construction projects, those over a certain value are audited by using the Comprehensive Approach and with those less than that value, the Results Approach is applied. In the Comprehensive Approach to the audit of construction projects, the audit covers the planning, implementation, monitoring, terms of contract agreement, management of contract and physical inspection of work in progress and work completed. In the Results Approach to the audit of construction projects, the auditor examines only those projects where specific problems are indicated. Such an audit is therefore confined to the examination of any problems - their cause, impact and implications.
hi the audit of investment decisions, policy is not questioned by the S AI. However, a review of the preliminary documents and investment decision is carried out.
In audit of design, the following points are considered:
This involves the comparison of estimates with approved or standard rates of work to ascertain the accuracy of computation.
In the audit of contracts and progress payments, the following points are considered:
Ascertain whether due consideration was given to the need for the project.
Ascertain whether in the planning and implementation of public works and projects due regard has been given to economy, efficiency and effectiveness.
The following checks are carried out:
Where it is a practice to include construction machinery and equipment as an item in the bills of quantities of contracts, the following matters are considered by the SAI:
As far as possible, an examination is carried out:
The following checks are carried out:
In order to undertake the comprehensive and effective audit of public works and projects, the SAI has developed internally or acquired externally, the necessary technical expertise. The members of the audit staff have been encouraged to acquire sufficient knowledge to identify potential issues through on-the-job training reinforced by practical experience gained from actual audits.
After the audit is completed, management letters are submitted to the heads of the agencies or departments involved. Subsequently, after taking into account replies from the auditee, issues that are material are reported in the relevant annual or special report to Parliament.
The provisions of the Audit Act 1957 empowers the SAI to carry out physical examination and verification of all auditing matters. The issue here is not whether physical examination and verification can be undertaken, but the extent to which these procedures should be carried out. A major limiting factor in this regard is the availability of auditing resources. A further problem is encountered in the internal control and quality control that exists in implementation of public works and projects.
In the interests of effectiveness and relevance, audits are undertaken and pertinent issues raised well before the expiry of the defects liability period. Accordingly, the cost to the government can be minimised when remedial actions are undertaken.
Not much difficulty is encountered in the audit of the financial and legal aspects of expenditure, revenue and stores. However, problems may arise in determining the cost and productivity of managing public works and projects. Measuring productivity in relation to costs and reviewing the performance of an activity by any agency, pose a problem to the SAI due to the lack of professional personnel competent in the field of engineering, quantity survey and architecture. In the absence of professionals with the necessary experience and skills to assist in assessing the performance of the activities of any agency, the findings and recommendations of the SAI may be subject to dispute.