How to reduce public sector fraud

Many areas of concern have been flagged in the auditor general’s annual and special reports, local and foreign media, and Malaysian blogs.

Some of these main areas of concern should receive immediate attention by the authorities, including the public accounts committees of Parliament and the state assemblies. (The resources of many developed countries are available online for free or upon payment of a small fee.)

The following handbooks and guides, sourced online, would be a good place to start for consideration and adoption, after adapting them to local needs and after getting the approvals. They should be translated to Malay, but bilingual versions could be even better.

We need to update our knowledge to keep up with thought, ideas and best practices elsewhere. We need not reinvent the wheel. We do not need consultants when better procedures and practices are already available for free.

Making Implementation of Programmes Matter, a Better Practice Guide from the Australian Prime Minister’s Office

This comprehensive guide covers all aspects of programme implementation, with checklists for every stage, including checklists for risk management, procurement and contract management, monitoring and review, and more importantly, checklists guidance questions for senior officers to discharge their given responsibilities. We do not have such a comprehensive guide in one document in our country.

Management of Contracts

In the many audit reports of the auditor general over several years and from frequent public observations of delays and uncompleted public buildings, the procurement of projects, services and goods through contracts has become a core issue. The poor management of contracts has resulted in losses of public funds, running into the millions.

Procurement

The Chartered Institute of Public Finance and Accountancy came up with a guide on the audit of procurement, with contract management as the primary focus. Though presented from an audit perspective, it is comprehensive, covering every aspect of procurement, providing a risk-based approach through the contract process.

Poor management of projects

This is another matter of great concern, repeatedly mentioned in the auditor general’s reports every year. Owing to the many projects undertaken every year by the Public Works Department, the Ministry of Finance had delegated to ministries and departments the undertaking of projects up to a prescribed value. Underlying the poor management of contracts are various issues covered in the Project Management Guidebook, 2018. It is possible that a such a guidebook is available in our engineering departments.

This project management guidebook provides a detailed procedure to empower managers so that they succeed in project management. It spells out clearly their duties and responsibilities, with certification by managers being an important feature in project execution, from beginning to completion.

The adoption of the Project Management Guidebook must be done after consultation with the Public Works Department. The earlier we make available the management methodology over projects to the public sector that is involved in projects, the quicker we will see the resulting benefits.

Corruption

The many instances of corruption leading to immense waste of public funds and the abuse of financial instructions and even regulations in the procurement of goods, services, and projects highlight the need to introduce anti-fraud indicators in procurement.

I strongly recommend a comprehensive handbook on anti-fraud indicators in procurement from the US air force material command for consideration by our public sector financial management authorities and the Ministry of Finance. This requires permission from the US authorities.

Till 2006, such a comprehensive handbook of fraud indicators was not available in the public service. Maybe the Malaysian Anti-Corruption Commission and other and other investigative agencies were aware.

With my experience in anti-fraud related matters over many years, I find this handbook to be comprehensive in its coverage of procurement fraud. Raising awareness of the various ways fraud takes place is the first step in the anti-corruption movement. All heads of ministries and all officers involved in procurement should be made aware of these situations.

General recommendations

Upgrade the role and function of accountants in the general public service

Accountants who make payments or authorise transfers of funds and who are holding key management positions must be encouraged and required to play a more meaningful professional role in public sector management and in the accounting function. Management and cost accountants should be charged (in specific terms) with greater authority and responsibility.

There must be insistence on documented records of such initiatives, for follow-up action by auditors, integrity officers, compliance officers and officers of central agencies, including investigators.

Accountants in every organisation play the role of ‘goalkeeper’, and it is to be expected – no, required – that they add greater value in public sector accounting. At the very least, they should churn out costing reports, variance reports and any other reports that would enhance financial management in the public sector. We must also quickly recognise initiatives by civil servants to save public funds.

Professional accountants in the public service should not just be bookkeepers.

Introduce rewards for suggestions that save costs           

The concept of punishment for wrongs or abuse of power for personal gain should also go hand-in-hand with rewards for those who suggest savings through cost studies and cost reductions, resulting in better financial management practices, ie getting better value for the ringgit. The reward campaign, at least twice a year, should be accompanied by public ceremonies, with families in attendance. Rewards with fully paid holidays for the family can be considered.

Take prompt corrective action against proven abusers

The results of investigations and punishments meted out should be widely published. Circulars of case findings, the abuses and wrongs committed, corrections undertaken, and the losses suffered could be considered for circulation within the public service so that all can learn from them.  

Follow the Budget strictly

The Budget, approved by Parliament, should be the ultimate authority for disbursements of public funds.

No disbursements should be made without appropriation in the Budget.

All funds received in whatever way must be accounted for, in the first instance, in the consolidated fund of the federation or the states.

All funds disbursed or accounted for as expenses in the accounts, should be for the purpose as appropriated by Parliament and for no other purpose.

All tax revenue must have legislative support. Other revenue and fees should be based on regulatory gazetted support. One has to read the annual reports of the auditor general..

Trust the civil service

Many or nearly all the suggestions in this paper can be implemented by the civil service with the help or involvement of the political leadership, the prime minister and the finance minister, if need be, after informing the cabinet or getting their approval.

The chief secretary, who is the head of the public service, with the support of the public service director general and the treasury secretary-general, with the  the MACC chief, the National Centre for Governance, Integrity and Anti-Corruption (GIACC) director general and the accountant general could form the team to lead the reforms.

Encourage public service accountants, auditors and others in charge of public finances to become members of the Association of Certified Fraud Examiners, with the government to pay for their membership

Upon their becoming certified members, the government should consider a single lump-sum payment in recognition of gaining certification. They should also be encouraged to follow the FCPA Blog, which provides news and commentary about white-collar crime, enforcement and compliance.

For officers engaged in public sector financial management, education and more awareness of fraud (which includes corruption) will be an invaluable aid in the battle against fraud in the public sector.

Kanason Pothinker is a former assistant auditor general of Malaysia, who was directly responsible to the auditor general for the planning, audit and reporting on all statutory bodies, both at federal and state levels. His career spanned 33 years from July 1959 to January 1992, and in 2005-2006, he headed a team to review financial management policies and procedures in the public sector

The views expressed in Aliran's media statements and the NGO statements we have endorsed reflect Aliran's official stand. Views and opinions expressed in other pieces published here do not necessarily reflect Aliran's official position.

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