AUDITOR GENERALS REPORT FOR THE YEAR 2011

PREFACE AND REPORT

AUDITOR GENERALS REPORT 2011 ON THE PERLIS STATE GOVERNMENT FINANCIAL STATEMENT AND THE FINANCIAL MANAGEMENT OF THE STATE DEPARTMENTS AND AGENCIES

NATIONAL AUDIT DEPARTMENT MALAYSIA

PREFACE

1. Article 106 and 107 of the Federal Constitution and the Audit Act 1957 requires the Auditor General to audit the State Governments Financial Statements and to report to the Supreme Head of Malaysia, His Majesty, Seri Paduka Baginda Yang di-Pertuan Agong and His Royal Highness, Duli Yang Maha Mulia Tuanku Raja Perlis. His Majesty would grant his Royal Assent for the tabling of the Report to Parliament while His Royal Highness will then consent for the tabling of the Report in the State Legislative Assembly. To fulfill these obligations, the National Audit Department has carried out two types of audit as follows: 1.1. Attestation Audits - The aim of these audits is to give opinion whether the State Governments Financial Statements for the year concerned shows a true and fair view and that its accounting records are properly maintain and updated. The attestation audits on the financial statements of the State Statutory Bodies, Local Authorities and the Islamic Religious Council were also undertaken. 1.2. Financial Management Audit - This audit is to evaluate the Financial Management of the State Departments and Agencies in adhering to the rules and regulations. The National Audit Department introduced the rating system based on Accountability Index (AI) to evaluate the financial management since year 2007 and 2011 is the fifth year of its implementation. The purpose of AI is to evaluate objectively and improve the financial management of the State Department and Agencies. AI encompasses elements such as management controls, budgetary controls, receipt controls, expenditure controls, the management of trusts funds/trust accounts/deposits, assets and stores, loans, investment as well as the submission of financial statements. The implementation of AI helps to instill a work culture of best practices. Besides, the culture of rectify the normal shortcomings, avoid their recurrences not only enhances excellence in financial management but also the integrity, transparency and accountability of the Departments and Agencies. 2. My Report on the State Governments Financial Statements and the Financial Management of Departments and Agencies in Perlis for the year 2011 was prepared based on the audit findings throughout the year. For the purpose of Financial Statements certification, the audit of the accounting system and documents related to incomes and expenditures conducted at the State Treasury Office.

3. My Report on the State Governments Financial Statements and the Financial Management of Departments/Agencies consists of the followings: Part I Part II Part III Part IV Part V Part VI - Certification of the State Governments Financial Statements for the year ended 31 December 2011 - Financial Analysis of the State Government - The State Governments Development Plan - Financial Management Performance of the State Departments/Agencies - Submission, Certification and Tabling of State Agencies Financial Statements - Tabling of the Auditor Generals Report and Meetings of the State Public Accounts Committee 4. Apart from fulfilling the statutory requirement, I hope this Report be used as one of the basis to rectify all shortcomings and further enhance the management of public funds. This is vital to ensure that every Ringgit collected and spent contributes towards the development and well-being of the citizens. 5. In my opinion, the financial performance and financial management of the State may be enhanced by focusing on increasing revenue by identifying new sources of revenue and to reduce arrears of revenue. In addition, I would also like to urge the State Government to strengthen financial management in Departments and Agencies particularly in respect of the management of assets and inventories as a preparatory in tandem with the Federal Governments implementation policy of Accrual Accounting in 2015. Implementation of Accrual Accounting Policy requires the value of all Government assets whether tangible, intangible and live assets fully reflected in the Financial Statements of the Federal and State Government. 6. I wish to express my gratitude to all officers in the various State Departments and Agencies in Perlis who have given their full cooperation to my officers during the audit I wish to express my gratitude to all the officers in the various Departments and Agencies who have given their full cooperation to my officers during the audit. I would also like to extend my appreciation and thanks to my officers who have worked diligently and very committed to the completion of this Report.

(TAN SRI DATO SETIA HAJI AMBRIN BIN BUANG) Auditor General of Malaysia Putrajaya 10 May 2012
3

REPORT SUMMARY

PART I

- CERTIFICATION OF THE STATE GOVERNMENTS STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011

FINANCIAL

1. Generally, the Perlis State Government Financial Statements reflected a true and fair view of the financial affairs of the Perlis State Government for the year ended 31 December 2011. The Financial Statements for the year ended 31 December 2011 was certified and all items in the Statement of Financial Position, Statement of Cash Receipts and Payments, Statement of Financial Performance, Statement of Accounts Memorandum and Notes to the Financial Statements were verified with the supporting documents. PART II - FINANCIAL ANALYSIS OF THE STATE GOVERNMENT

2. The Audit analysis revealed that the financial position of the Perlis State Government in 2011 was satisfactory. There is an increase of RM20.38 million or 63.6% in the Consolidated Fund amounting to RM52.41 million as compared to RM32.03 million in 2010. However, collection of revenue in 2011 decreased by RM18.68 million or 16% to RM97.81 million, while expenses increased by RM5.84 million or 5.3% to RM115.05 million. The State Government recorded a deficit in its Consolidated Revenue Accounts amounted to RM46.26 million as compared to surplus of RM7.28 million in 2010, after taking into accounts the Transfer into Development Funds amounting to RM29.02 million. Public Debt has decreased by RM73.80 million or 17.7% to RM342.49 million, due to the acquisition of RM75.12 million debt by the Water Asset Management Limited. The arrears in repayment of loan received from the Federal Government was slightly decreased by RM3.53 million or 2.1% to RM161.13 million as compared to RM164.66 million in 2010. The arrears of revenue for 2011 were RM24.05 million, while the arrears in repayment of loan by State Agency was RM68.77 million. PART III - STATE GOVERNMENT DEVELOPMENT PLAN

3. For the success of Tenth Malaysia Plan, a total of RM511.90 million budget ceilings had been approved by the State Government for a period of 5 years to implement 860 development projects. Overall, the implementation of the State Governments projects under the Tenth Malaysia Plan is satisfactorily, of which RM63.52 million or 89.9% from RM70.66 million allocated in 2011 was spent. As at 2011, a total of 128 projects or 85.3% of the 150 approved development projects were completed, while 9 projects were still in progress and 13 projects have not started or delayed.

PART IV -

FINANCIAL MANAGEMENT DEPARTMENTS/AGENCIES

PERFORMANCE

OF

THE

STATE

4. In 2011, the National Audit Department carried out the Financial Management Audit based on the Accountability Index in 6 State Departments/Agencies. Overall, the performance on the financial management of 3 Departments were excellent, while 2 other State Department/Agency were good and 1 State Agency was satisfactory. This is an improvement as compared to 2009 and 2010 where performances in 4 and 3 State Departments/Agencies respectively were good. The weaknesses raised were in respect of Management Control; Management of Assets and Stores; Management of Investments; Management of Loans and Management of Financial Statement. PART V SUBMISSION, CERTIFICATION FINANCIAL STATEMENTS AND TABLING STATE AGENCIES

5. In 2011, the submission of State Agencies Financial Statements was good. As at 9 May 2012, all State Agencies have submitted their Financial Statements for the year ended 2010 and 2011 for audit. During the same period, 10 Financial Statements were certified of which 5 Unqualified Audit Certificates while 5 Qualified Audit Certificates were issued. A total of 5 Financial Statements for year 2010 and one Financial Statements for year 2009 from 5 State Agencies were tabled in the Perlis State Legislative Assembly. PART VI TABLING OF THE AUDITOR GENERALS REPORT AND MEETINGS OF THE STATE PUBLIC ACCOUNTS COMMITTEE

6. The Auditor General's Report on the State Government Financial Statements and the State Agencies Accounts for the year 2010 were tabled in the State Legislative Assembly on 15 December 2011. The Public Accounts Committee (Committee) met two times in 2011. The Committee discussed the issues reported in the Auditor General's Report for 2008 and 2009 involving two Departments, a State Agency and a State company. The Committee also called upon the Housing And Local Government Unit to get clarification on rental arrears and flood management briefing by the Perlis National Security Council, the Social Welfare Department and District Administration Unit.