Auditor-general must be highly competent, professional, says analyst

The person heading the national audit department must possess a high level of competence, expertise and professional independence to ensure financial risks and governance weaknesses are properly addressed, says an analyst.

Ahmad Zaharuddin Sani Ahmad Sabri of Global Asia Consulting said the Lembaga Tabung Haji (TH) audit episode has highlighted the importance of professional judgement at the highest levels when auditors encounter issues that could affect the public institution’s financial position.

“The biggest question is not simply whether an audit was conducted, but whether auditors have the competence, independence and professional courage to act when they find something wrong,” he told FMT.

Zaharuddin’s comments followed the declassification in June of the royal commission of inquiry (RCI) report on TH.

The RCI found that TH’s 2017 financial statements should not have been given an unqualified audit opinion.

The audit team had initially proposed a qualified opinion over issues involving TH’s impairment policy and RM227.81 million in investment impairment.

However, an unqualified opinion with an Emphasis of Matter (EOM) was eventually issued.

The RCI also found that TH should have posted a net loss of about RM1.4 billion under the Malaysian Financial Reporting Standards, had the system been fully applied — rather than the RM3.4 billion profit reported.

Former auditor-general Madinah Mohamad, who finalised the audit opinion, defended her decision, saying a qualified opinion could have undermined depositor confidence and had major implications for TH.

Zaharuddin said the question was whether weaknesses or risks identified during an audit had been sufficiently challenged and escalated to those with the authority to act.

“An audit that finds problems but cannot trigger action is not a safeguard. It merely becomes a record after the damage has been done.”

He proposed a two-tier audit system for government-linked companies (GLCs), strategic government-linked investment companies (GLICs) and other high-risk entities.

Besides being audited by the national audit department, he said such entities should also be scrutinised by independent professional audit firms.

“It is not because we do not trust the national audit department, but because two layers of scrutiny can reduce blind spots and provide different perspectives, including on financial, investment and governance matters,” he said.

Zaharuddin also proposed that the government introduce an annual report on GLC ownership, to be tabled in Parliament.

He said the report could detail the government’s holdings, the value and performance of companies, ownership objectives and returns to the government.

Annual tabling would also allow Parliament to scrutinise performance and risks regularly, helping to identify problems before they become more serious, he said.

Zaharuddin said the public had a right to know where public money went, who made the decisions, who benefited, what returns were generated and what early warning signs showed an investment or project was running into trouble.

“We cannot continue relying on the courage of individuals. That courage must be built into the rules and institutions,” he said.

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