A-G’s report on Penang’s financial status Positive feedback with some concerns

“...some government departments and agencies have not prudently spent their allocated money, and there is still plenty of room for improvement.”

Despite the positive response from the Auditor-General regarding Penang’s financial statement and financial management, it is nevertheless important to understand to what extent the current government spends its resources. By looking at the basic data, there are still several areas that can be improved through good management and close monitoring by appointed government agencies or departments.

Firstly, let’s understand the components in a state’s financial statement. The financial statement is regarded as all the actual financial transactions for the state government which account for all the internal resources and the exercise of financial resources. It consists of three major components, namely consolidated revenue fund, consolidated loan fund and consolidated trust fund.

Consolidated revenue fund explains how governments spend their operating budget by using all the revenue received through tax collections, rentals, issuing licenses and permits, penalties and punishments, receipts from goods sold and receipts from federal government agencies. Or to put it another way, it is equivalent to revenue of the state government minus operating expenditure.

Consolidated loan fund, meanwhile, accounts for all the loan receipts and disbursements made by statutory bodies and local authorities, while consolidated trust fund includes the development fund, government trust, public trust, deposit and payable account. This article will mainly involve the discussion of the first component, i.e. consolidated revenue fund, as well as the allocation and expenditure of the state government five years ago.

According to the Auditor-General’s report, the financial management performance of state government departments and agencies in 2009 showed improvement compared to 2008, reflecting a true and fair view of financial affairs. This was attributed to greater accumulated surplus in the consolidated revenue fund by about RM77.3mil to RM539mil in 2009 and a larger amount of total assets, with an increase of 7.4% to RM1.1bil last year.

The Penang state government’s operating status

From Table 1, you can see that current consolidated revenue fund is actually a sum of previous consolidated revenue fund and current surplus/deficit of operating budget. In other words, how much the fund will increase or decrease will solely depend on the operating budget. If the state government had a very large amount of surplus in its operating budget, the consolidated revenue fund will increase at a higher rate. Th is can be seen from the 2008 figures, where the surplus was RM88mil and the consolidated revenue fund was raised to about RM462mil. On the other hand, the fund will increase at a lower rate if the surplus is small.

On the whole, however, Penang’s operating budget for 2009 was executed considerably well despite slightly lower surplus as compared to 2008. Th is was because the increase in operating expenditure was higher than the rise in the revenue collected by the state government.

What’s still lacking: prudence versus extravagance?

Every five years, all the states are given a sum of money to maintain and develop their states. This is part of the development expenditure of the central government. Under the Ninth Malaysia Plan, Penang was given about RM775mil for its development projects from 2006–2010. From 2006–2009, the state had spent more than 80% of its total allocations, with about RM213.4mil remaining for development plans in 2010.

As you can see from Table 2, the percentage share of total allocation is fairly distributed, and in fact is increasing from 17.5% in 2006 to 24% in 2009. This leaves 18.5% of the total allocation for the state’s development projects in 2010. Note that what is being allocated is not completely used up by the state government.

Source: National Audit Department.

This might suggest to some that the government is not overspending. In reality, the progress of the development plans would be of great concern as it may mean no progress is being made and therefore, not much money is being spent. Using the correct amount of money in the right projects to bring benefits to society is also another crucial concern.

Some government department or agencies’ activities need to be given further emphasis. For instance, the State Forestry Department was allocated a total of RM6.25mil to conduct the Bio Tourism Resources Development Programme from 2007 to 2009. The department had to develop three recreational forest parks, namely the Recreational Forest of Teluk Bahang, Bukit Mertajam and Bukit Panchor State Park.

According to the Auditor-General’s report, RM5.19mil or 92.5% of the allocation has been utilised and as of 2009, the overall management and development of the recreational parks can be further improved. The report also noted that infrastructure worth RM1.46mil was abandoned for two years and not fully utilised.

Another significant project that was raised in the report is the management of library collections and facilities. This project is under the Public Library Corporation, and the auditors found that there were about 27,000 books worth RM0.68mil purchased between 2007 and 2009. However, the books were not processed and displayed for reference and borrowings. Worse, a total of 6,688 books and magazines worth RM133,925 were not returned from 2007 to 2009, indicating a failure to monitor as well as ineffective management and regulation of the library’s book collection system.

With all these concerns, it is clear that some government departments and agencies have not prudently spent their allocated money, and there is still plenty of room for improvement. All related government departments or agencies need to be further improved, possibly through minimising unnecessary resources and enhancing revenue benefit oriented activities and programmes in order to optimise the cost and benefits of the allocations to its people.

Source: National Audit Department.

Ong Wooi Leng is a research analyst at the Socio-Economic and Environmental Research Institute (seri).

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