Reference no: EM132784537

Case Study - Forest Institute Malaysia(FRIM)

The national Audit Department is required to audit all of the federal statutory bodies' activities to ascertain that they are implemented efficiently, effectively and prudently in line with their prescribed objectives. Being one of the prominent statutory bodies at the federal level, Forest Institute Malaysia (FRIM) has engaged a number of important procurement process. However, due to certain issues highlighted by some politicians, FRIM's procurement management activity was selected to be tabled in the first Parliament session of 2015.

FRIM was established on 1 October 1985 under the Malaysian Forestry Research and Development Board Act 1985 ( Act 319 ). FRIM is under the purview of the Ministry Of Natural Resources and Environment. The main objective of the establishment of FRIM is to enhance knowledge, develop technology and provide appropriate services for the conservation, management, development and use of forest resources. FRIM's function is to plan for and implement forestry research and development activities, as well to conserve the forest resources. FRIM procures supplies, services and works through direct purchases, price quotations and tenders annually . FRIM adopts a centralized procurement system in which the procurement branch and the finance division are responsible for managing and monitoring the payment progress. FRIM has prepared Procurement Guidelines in accordance with the Treasury Instructions and Treasury Circular. In addition, FRIM also adopts an online system known as MyProcurement to manage and administer the procurement activities effectively. Works, supplies and services procured during the years 2012 to 2014 amounted to RM67.93 MILLION, comprising RM39.68 million of direct purchases , RM17.41 million of price quotations and tenders of RM10.84 million.

An audit carried out between October and November 2014 revealed that FRIM's procurement management had complied with the price quotation and tender procedures. However , there were weaknesses in procurement through direct purchases and project implementation as follows:

1. Procurement of supplies/services namely supply of labour, security, supply and installation of telephone lines, and car rentals amounting to RM737,285 for the same type of items were split into smaller amounts to avoid the procedures on price quotation.

2. FRIM made a direct purchase for supplies and/or services which exceeded the threshold. In 2014, there were four procurements amounting more than RM150,000 out pf 2,314 procurements with a total amount of RM11.62 million processed without price quotations.

3. A total of 39 local purchase orders amounted to RM885,788 were issued only after the supplies and/or services were received by FRIM

4. Equipment worth RM570,000 was not installed in the tower and the Gateway House as planned. Audit also found that the Gateway House valued at RM74,200 was idle, unmanaged , damaged and there were traces of intrusion and theft.

5. A solar dryer worth RM229,800 which was installed at the Postharvest Technology Centre , Maran, on 4 August 2014 has yet to be utilized due to the absence of clean water or reverse 6 Osmosis water supply. The use of ground water was not suitable because it contained microbes which would affect the quality of samples and products to be produced.

6. Research and herb processing equipment amounting to RM243,520 was yet to be used in the Post Harvest Technology Centre, Maran . All the audit findings were presented to the top management of FRIM . The director is worried about the efficiency and effectiveness of procurement activities practiced by FRIM. The head of the procurement department is required to report on the audit findings and the strategies to overcome those
problems in three week's time .

Questions :

a) Discuss the responsibilities of an internal audit team in performing an audit work on FRIM.

b) Describe three elements that need to be considered by the internal audit team in setting up an audit engagement. Justify whether or not ( and how ) such elements are appropriately considered in the case study.

c) Explain what needs to be considered by those charged with governance and public moneys in relation to the weaknesses in the procurement procedure to maintain accountability presented in the case study.

Attachment:- Case Study - Question.rar