So Who Audits The Auditor General

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From Walter Sandosam
The recent auditor-general’s (A-G) report has focused attention on governance. In the past, focus was on financial leakage and wastage due to inefficiencies.
The HRD Corp audit, recently deliberated by the Public Accounts Committee (PAC), has highlighted much, to the extent that an independent third party audit was called for.
Certain facts are not disputed, notably the absence of a Bank Negara Malaysia (BNM) representative on the investment panel. Only after the report was published, casting aspersions on HRD Corp regarding negligence and flouting the law, did it surface that this was a unilateral decision taken by BNM pursuant to the coming into force of the Central Bank of Malaysia Act 2009.
It is reported that the central bank in 2010 decided to withdraw its representative from the panel notwithstanding Section 26(2)(e) of the Human Resource Development Act 2001 (HRD Act) which requires the central bank’s participation.
A letter dated July 12, 2010 suggests that the withdrawal was not due to any deliberate act or omission on HRD Corp’s part but an action of BNM. The 2009 act, however, does not specifically preclude BNM from sitting on investment panels of other institutions.
This brings to the forefront two things: is BNM above the law to make decisions which are not in line with the prevailing laws of the land?
Logically, the BNM board should be taken to task, as the said letter was signed by the secretary to the board.
It appears that PAC lacks either the bite or the clout to suggest such punitive action be taken against BNM. Proposing that the HRD Act be amended is itself a no-brainer, an easy way out.
Secondly, if it is conceded that it is a no-brainer, why was this not suggested as a recommendation in the A-G’s report?
One begins to wonder if those involved really understand what it entails to prepare a professional report – it appears HRD Corp was not given the space, latitude or opportunity to provide answers.
This goes against the grain of internal auditing, focusing on governance, (the task being undertaken by the A-G), which is primarily to 
beef up good governance.
Based on management responses, the tone of the report should not have been alarmist.
This is the crux of any intelligent and professional audit function. The oversight of not providing a balanced report which reflects the true picture in a constructive manner is deeply saddening on the credibility and competence of the A-G’s function as a whole.
Both BNM and the A-G need to be held accountable, just as the HRD Corp and MRT Corp are being held accountable. PAC should act in a more responsible manner if pertinent errors or omissions have been made, especially on the profile of investment portfolio and investment 
losses. An external auditor, BDO, had audited HRD Corp accounts with no qualification.
In another clarification, the minister refuted a claim in the PAC report that HRD Corp’s investment panel had engaged in several high-risk investments. He is reported to have told the Dewan Rakyat that 84% of RM3.77 billion had been invested by HRD Corp in low-risk investments such as cash, deposits, bonds, sukuk and trust accounts, and the remainder in equities.
If the minister is misleading Parliament and the A-G’s report is correct, then the minister should be subject to punitive action, or conversely the A-G.
This is a glaring example of errors and omissions in the audit report. So who is correct – the minister, the A-G or some media journalists trying to offer 
expert and unbiased analyses (at the risk of legal suits)?
This goes back to the crux: who audits the auditor? On the external auditor front, covering the veracity of financial accounts being published, there is the Audit Oversight Board.
For internal auditors with internal audit being a mandated function, they are subject to external quality assurance reviews by an external party once every five years in accordance with international professional standards.
Has the A-G ever been audited or is it exempt and not subject to standards, local or international? Surely, this cannot be so!
Given the responses by ministers from two different ministries on the reports, among others on the 
lack of context, PAC should ensure that the A-G’s office has been properly trained and possesses the relevant experience in the areas that they audit.
This will go a long way in building talent, a core functionality of HRD Corp. - FMT
Walter Sandosam is a former president of the Institute Of Internal Auditors Malaysia.
The views expressed are those of the writer and do not necessarily reflect the views of MMKtT.

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