In light of the recently released Auditor General’s Report revealing substantial financial losses in federal agency subsidiaries, independent research institute IDEAS has strongly urged the government to streamline its operations by closing redundant and cost-inefficient subsidiaries that compete with small businesses.
The report highlights alarming figures, indicating losses of almost RM2 billion in 2022 alone, from subsidiaries under five federal agencies despite recording the highest investment at RM54.574 billion. The Federal Land Development Authority (FELDA), for example, incurred losses of RM1 billion, emphasising the urgent need for a comprehensive review and consolidation of government agencies and subsidiaries to ensure efficiency and prevent unnecessary financial setbacks.
IDEAS said it is particularly concerned about FELDA and PR1MA’s sustainability. “Without significant restructuring, escalating losses and reliance on bailouts present a long-term burden to the government and ultimately, the taxpayers,” said Alissa Rode, Senior Manager of IDEAS. It also said the emphasise needed for accountability on mismanagement, proposing that agencies facing repeated issues in key audit areas be closely monitored by Parliament and through the Auditor General’s Dashboard, providing transparency to the public.
Notably, IDEAS said it discourages continued federal government bailouts and guarantees as a solution, citing their fiscal unsustainability and negative impact on the government’s credit ratings. Instead, IDEAS emphasises the need for stronger oversight from both the executive and legislative branches to ensure good governance and fiscal responsibility in agencies and their subsidiaries.
“IDEAS calls for the government to actively manage fiscal risks from subsidiaries and consolidate irrelevant or high-risk activities that detract from the agencies’ actual policy objectives. Agencies should stop venturing into unnecessary market activities which are better undertaken by the private sector,” said Alissa.
Among the recommendation is for the government to provide additional clarity on steps they will undertake to improve the professionalism of the boards and hold them more accountable for the agencies’ performance.
Parliamentary Special Select Committees (PSSCs) should also be given an active role to monitor specific Ministries and the agencies under them. In fact, the PSSCs should be given a mandate to summon the board members of these agencies. “Parliament should also receive a mitigation plan from these agencies which are at risk of defaulting on government guarantees, as required by Section 24 of the Public Finance and Fiscal Responsibility Act (PFFRA),” Alissa noted. The PFFRA has been in effect from 1 January 2024.
IDEAS also highlighted the consistently low compliance in producing timely financial statements by auditees, posing a significant risk to the government’s understanding of statutory bodies’ financial positions and the associated risks.
The report highlighted that only 11 out of 134 agencies have submitted audited financial statements to Parliament, and four federal agencies await audit. By law, Parliament should receive audited accounts within six months of the financial year end for statutory bodies. Alissa Rode stated, “these instances of mismanagement raise an urgent need to enhance financial compliance, timely reporting, and increased professionalism of boards to ensure better management and efficiency in state enterprises”.
