Audit reports are meant to build, not harm

 

From Walter Sandosam

The recent audit report by the auditor-general (A-G) on the Human Resource Development Corporation (HRD Corp) is a comprehensive report about the entity’s affairs. Its contents cover both financial and governance structures.

That is what is expected of any audit report, be it in the public or private sector.

On this score, it would be pertinent to highlight that the Securities Commission of Malaysia had in 2008 recognised the importance of sound internal audit function in the governance space.

Subsequently, with the changes to the listing rules by Bursa Malaysia, internal audits were elevated as a mandated function for all publicly listed entities, further recognised in the provisions stipulated in the Malaysian Code of Corporate Governance (MCCG) on internal audits.

The A-G’s report has attracted much concern from various quarters, including numerous stakeholders, some of whom are aggrieved, and others who now want a “voice” on its activities. Much of it has been negative, fuelled further by the MACC getting into the fray.

As a certified internal auditor, I find the current discourse both distasteful and unhelpful.

It appears that HRD Corp is governed by an Act which was enacted in 2001. One of the absurdities here is that the HRD Corp CEO is appointed by the government of the day, or the minister.

This is robustly ridiculous from a governance perspective, undermining the board of directors. This needs immediate recalibration before moving on.

The Malaysian Employers Federation president nailed it on the head when he said the A-G’s report should be used “to beef up governance”. That is about the only rational statement, devoid of emotion, made recently.

Cursory media coverage quoting various statements gives the perception that there is a witch-hunt, with many commenting without fully appreciating the underlying factors (not to mention undercurrents with a whiff of power abuse), and taking figures out of context.

On July 4, the chairman of HRD Corp reported a profit before tax of RM97.5 million in 2023 (compared with RM25.8 million in 2020), levy collection of RM2.13 billion (RM1.82 billion in 2022) and with higher key utilisation rates. It also has sizable accumulated profits. Financially, it is not compromised.

There is concern that RM3.7 billion is in investments, some deemed high risk, but this is an operational issue. If there is no comprehensive investment policy in place with risk appetite parameters, then how does one deem it “high risk” especially if it is being marked to market?

It is nonetheless acknowledged that governance could be better. For example, by having a Bank Negara Malaysia representative on its investment panel, higher utilisation of levies for training, clarity in policies and reporting, penalties for non-compliance, comprehensive training across all business streams and a host of others.

This is best left to the current chairman (who is highly experienced) and the board. Already, pursuant actions have been taken to institute remedial actions. This is commendable.

As a moral compass, the government should keep in mind the High Court’s judgment on the National Feedlot Corporation (NFC) case, which was blown out of proportion for political purposes, regarding the purchase of condominiums which was not in line with the objectives of the NFC.

It also reflected the undue delay in construction of abattoirs and the lethargy on the ministry’s part.

Audit reports, irrespective of domain, have only one core purpose – to provide insight to the board on the current state of operations and to provide value-added recommendations for the board and management to consider for implementation.

It is never envisioned to be a tool to harm specific persons.

In 2008, this core functionality was recognised in an effort to further build on initiatives related to good governance. In this aspect, the A-G, a key player in the public sector, is complementary to the chief audit executives in the corporate sector.

Both are recognised as indispensable for good governance and audit reports are meant to build. Let us keep that in mind.- FMT

Walter Sandosam is the past president of the Institute of Internal Auditors Malaysia.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.