W ithin the general framework of accountees or stakeholders, the nature of the accountabi lity relationship and the scope o f account and based on the background of Malaysian local authorities (discussed i n Chapter Two), the accountees (stakeholders) and the nature of the accountabil ity rel ationship within the local authorities are identified.
4.6. 1 Accountees (Stakeholders) of Malaysian Local Authorities
As discussed in Chapter Two, local authorities within each state in Malaysia are under the j urisdiction of the respective state government. The state governments have a legislative power to control the affairs o f the local authorities as stipulated in the Malaysian Local Government Act 1 976 (Act 1 7 1 , Section 91 2). The governments, through their mayor or president, authorise the local authorities to act on their behalf for the operation of certain tasks and responsi b i l it ies consistent with the mandates given by
1 2 Section 9 of Act 1 7 1 empowers the state authority to issue directions o f a general character to a local authority on the pol icy to be followed i n the exercise of the powers conferred and the duties imposed on the local authority by or under this Act in relation to matters which appear to the state authority to affect the interests of the local authority area.
the electorates of the state government. I n addition, the local authorities accept the transfer of resources in terms of annual grants and responsibilities from their respective state governments. Thus, the accountabi lity relationship between the local authorities and the state governments is j ustified by the factors of authorisation and financial support. This is also consistent theoretical ly with Laugh I in ( 1 990) who suggests that the accountabi l ity relationshi p is established when there is a transfer o f resources and responsibil ities from the principal (the state government) to the agent (the local authority).
While the relationships between local authorities and the state governments are direct, the authorities do not have a direct relationship with the federal government. As discussed in Chapter Two, the federal government, through the Ministry of Local Government, deals with local authorities only in terms of advice on pol icies and legal matters and transfer of grants for development projects in the locality through the state governments. As stipulated in the Federal Constitution (Article 95A), the federal government, through the state governments, supervises or monitors the local authorities in relation to policy matters to ensure that the conduct or actions of local authorities is consistent with the national policies. Therefore, both the state and federal governments are the accountees or stakeholders of the local authorities with political and economic interests. While the state governments have a direct power of authorisation and directly provide fi nancial support, the federal government only has an indirect power of authorisation and indirectly provides financial support. Based on the accountability classifications discussed in Section 4.3, the accountability between local authorities and the government relates to h ierarchical or political accountabil ity.
W ithin the context of Malaysian local authorities, the public, which includes tax/rate payers and service consumers, provides financial support mainly through assessment taxes/rates and charges, for the authorities to carry out their functions. These groups may also be impacted by the decisions and actions of the authorities. W ith the current system o f the local authorities' administration, there is no group of public as voters. This is sign i ficantly different from the local government of other international jurisdictions that operate an electoral system in the election of mayors and counc il lors, where the public group may also be c lassified as voters who provide political support. The voters, as the accountees, have a legitimate right to hold the accountor accountable. Therefore, the public within the context of Malaysian local authorities can on ly be classi fied as the accountees or stakeholders w ith economic and social interests.
There are a number of interest groups involved within the context of Malaysian local a uthorities. These groups may include the media or non-governmental organisations (NGOs) (for example, a traders' or citizens' associat ion). They do not provide financial support but they may be impacted on by the decisions and actions of the authorities. I nterest groups such as the media may also affect local authorities and their officials by publ icly reporting their actions or conduct. Therefore, based on the impact factor, the interest groups are the accountees or stakeholders with a social interest in the local authorities. The accountabi l ity between local authorities and the publ ic and interest groups is c learly a public or social accountability as discussed in the earlier section.
Other parties that also provide financial support to local authorities include the group of creditors that comprise suppl iers and lenders. They may also be impacted by the decisions or actions of the a uthorities, especially in relation to financial decisions. Therefore, creditors are c lassified as the accountees or stakeholders who have an economic interest in the local authorities. The accountabil ity of local authorities to the creditors can be classified as vertical accountabi lity, although it does not involve hierarchy. However, this accountabil ity relationship is normally based on a contractual agreement.
The auditor general in the relationship with local authorities acts as an oversight body. Parl iament authorises the aud itor general to mon itor/supervise or control the conduct or actions o f the authorities and their officials to ensure that the local authorities comply with rules and regulations. The auditor general is responsible for providing an annual report to the King and presenting the report in the parliament of the federal government. The aud i tor general's report of each state government (which includes the report on local authorities of the state) is also provided to the state government to be presented in the state assembly (Othman, 200 I). Although the local authorities do not have direct accountabi lity to the auditor, they are required to respond to any concerns raised by the auditor. Consistent with Bovens (2007a, 2007b) the auditor general is classified as a legal accountee. The auditor general is considered the accountee or stakeho lder with a legal interest and with an indirect power of authorisation to ensure that the accountabil ity of the local a uthorities is improved. Based on the earl ier d i scussion on accountabil ity classifications, the accountabi lity relationship between local authorities and the auditor general can be referred to as legal, adm inistrative or diagonal accountabil ity.
Other parties also related to local authorities include other government agencies, for example the Department of Environm ent or the Department of Works. Local authorities m ay discuss environmental management programmes with the Department of Environment and infrastructure development with the Department of Works. These pub l ic entities m ay affect the deci sions and actions of the local authorities and are therefore also identified as the accountees or stakeholders of local authorities. This kind of accountabi l ity can be classified as horizontal accountabi lity.
W ithin the local authorities, the parties involved include other employees or supporting personnel, the heads of departments (the management) and a panel of counci l l ors. As d iscussed in Chapter Two, other employees are directly accountable to the management. The heads of departments are accountable to the mayor/president who is then accountable to the panel of counci l lors. The panel of counci llors (which is chaired by the mayor/president) is directly accountable to the state government. These accountability rel ationships are hierarchical and justified by the factor of authorisation. Therefore, the councillors and the heads of departments are the accountees or stakeholders who have an econom ic interest in local authorities. In add ition to an economic interest, the council lors, who are usually politicians from the state rul ing party, may also h ave a political interest in the authorities. Further, the establishment of the accountabi l ity relationship between a local authority, through its mayor or president, and its employees (the management and other employees), may be j ustified by the impact factor. The employees may be impacted by the decisions and actions of the local authority as an employer such as decisions related to salary and other financial benefits. This indicates that employees have an economic interest in local authorities. Therefore, they are also the accountees or sta keholders of local authorities.
The accountees or stakeholders of local authorities that were identified are summarised in Table 4.3 . Consistent with Boyne et al. (2002), Flack and Ryan (2004) and Steccolini (2004), the accountees who are outside the local authorities are classified in this research as external stakeholders and those who are within the local authorities are the internal stakeholders.
Table 4.3: The Accountees (Stakeholders) of Malaysian Local Authorities
Accountee$
the
>Occurren£e
Outside the local authorities (external stakeholders)
State governments Authorisation Political and economic
Financial
Federal government Authorisation Political and economic Financial
A uditor general Authorisation Legal
Public as tax/rate payers Financial and Economic and social
Public as service consumers Financial and Economic and social
Creditors Financial and Economic
I nterest groups (e.g. media, citizen's Impact Social
association, trader's association and
other entities)
Other Social
Within the local authorities (internal stakeholders)
Panel of councillors Authorisation Political and economic
(head of Authorisation and Economic
Other Economic
The current research takes into account views from samples of a l l stakeholders of the local authorities as shown in Table 4 . 3 (except for other government agencies). Samples of the groups or representatives of the state governments, the public, creditors, the m anagement, and other employees are involved in the first stage of the research process (the questionnaire survey). The expert representatives of these groups as wel l as of the federal government, the auditor general and the citizen's association (representing the interest group) are involved in the second stage of the research process ( De lphi e xercise). This is d iscussed in Chapter Six. Having specified the stakeholders or accountees, the nature of the accountabi lity relationship between the local authorities and their stakeholders is discussed in the following section.
4.6.2 The Natu re of Accounta bility Relationships within Malaysian Local Authorities
F igure 4.2 shows the nature of the accountability relationship between Malaysian local authorities and their accountees or stakeholders as identified in Section 4.6. 1 . This relationship invo l ves both the formal nature (the bond of accountability) and the informal nature (the link of accountabil ity).
A s shown in Figure 4.2, the formal nature of the accountabi lity relationship, or Stewart's ( 1 984) bond of accountability, in the context of Malaysian local authorities is apparent between both the local authorities and the accountees outside the authorities - the state government and creditors - and between the authorities and their employees (the head of departments/management and other employees). As discussed in the earlier section, the accountabil ity relationship between local authorities and the state governments is stipu lated in Section 9 o f Act 1 7 1 and therefore the relationship is legally defined.
Figure 4.2 : The Nature of the Accountability Relationship between Malaysian Local Authorities and Their Accountees/Stakeholders
�
Federal govemment � - Auditor general�
... , ' , ,---.
State government ' , , _ _ _ _ Public as tax/rate payers + - - - - Public as consumers � - - - Interest groups ..,. _ _ _ _ _ _ Other government ..,. _ _ _ _ _ _ agencies Creditors (lenders/suppliers) Local authorities (City/municipal/district councils) Panel of counci l lorsMayor/
l
residentt �
Head of departments (management)t �
Other employeesKey: _____. The bond of accountability
- - - - � The link of accountability
The accountabi lity relationship between the authorities and their creditors is classified as one of a formal nature as it involves a contractual agreement that sets out the responsibil ity of one party to another in respect o f resources suppl ied or consumed. Therefore, through the mayor/president, the local authorities are directly and legally accountable to the creditors. W ithin the local authorities, the formal nature of the accountability relationship occurs between the authorities and the employees comprising the head of departments/management and other employees. Contracts relating to conditions of employment create responsibil ities and expectations for both the local authority, through the mayor/president (as the employer), and its employees which gives rise to a formal nature (the bond) of the accountab ility relationship.
On the other hand, as shown in Figure 4.2, the accountability relationsh ips between the local authorities and the federal government, between the authorities and the auditor general, and between the authorities and the public, the interest groups and other government agencies are informal in nature (the l i n k of accountabi lity). As discussed in Section 4.6. 1 , the federal government deals with local authorities ind irectly through the state governments and that is why the relationshi p is considered to be of an informal nature.
In respect of the relationship between the authorities and the pub! ic, the interest groups and other government agencies, there is a lim itation in terms of the abil ity of the public and the interest groups to impose direct sanctions ( for example via election) against the authorities' key officials. Section 1 42 of Act 1 7 1 only provides that "citizens who are dissatisfied with the authority' s performance have a right to make objections in writing and are allowed an opportun ity of being heard at the consequent enquiry". The public can make a direct submission to the local authority concerned, to the Public Complaint Bureau of the Prime M inister's Department, or they can make public obj ections/complaints via the media. The Bureau may then review the case and if necessary bring its findings to the attention of the relevant state government to take further action. Although the interest groups or other government agencies may impact the l ocal authorities and their officials there i s no statutory provi sion for any interest groups to hold the local authorities accountable. Within this regime, the public, the interest groups and other government agencies have no opportun ity to directly hold local authorities to account; rather, any sanctions are imposed through a higher authority such a s the state government. In the absence of the capacity for power, the accountability
relationship between the local authority and the broader public is therefore only in the form of an informal structure, which recognises an informal "recogn ition of responsiveness" by local authorities (Stewart, 1 984, p.25).
The informal nature of the accountability relationsh ip between the authorities and the auditor general exists because the auditor does not have the power of sanction over the conduct of the audited - the l ocal authorities. The authorities are only requ i red to respond to any concerns raised by the auditor. Therefore the 'responsiveness' of the authorities to the auditor indicates the existence of only an informal nature of accountabil ity relationship. The formal or the bond of accountability relationship only occurs between the auditor general and the state and federal governments.
4.6.3 The Scope of Account of Malaysian Local Authorities
W ith regard to the state governments as the accountee or stakeholder, local authorities are required to keep proper records and books of account, as a result of the transfer of resources in terms of annual grants and responsibil ities by the state governments (Section 53, Act 1 7 1 ). In this respect, local authorities are accountable to the state
governments for their performance in managing the responsibil ities and resources entrusted to them. Furthermore, the authorities are required to furnish all relevant accounts and other information on their property and activities to the state a uthority (Section 9, Act 1 7 1 ). This ind icates that the state authority requires appropriate information about the range of local authority activities and related performance in which people are interested. In particular, the state authority needs information a bout the results or outcomes of local a uthority activities in order to be able to fulfil its responsibil ities as an elected government. Based on the statutory provi sion, the authorities are accountable to their respective state government for fiscal compliance (i .e. accountabi l ity for probity and legality/financ ial accountability), for appropriate procedures (i.e. process accountabil ity) and for the effic iency and the effectiveness of the programmes/services undertaken (i.e. accountabil ity for programme and performance/managerial accountabi l ity). In addition to these scopes of accountability, the scope of policy may also be involved in the accountabil ity relationsh ip between the local authorities and their res pective state government. This is because the authorities are accountable to the state government for the achievement of the goals that are consistent with the government pol icies.
S im ilarly, policy accountability m ay also be involved in the relationship between the authority and the federal government. As stipulated in Article SA of the Federal Constitution of M alaysia, the federal government, through the Ministry of Housing and Local Government, provides advice to and coordination of local authorities i n matters especially related to legal and major policy issues. In addition, since the federal government also provides annual grants for the local authorities through their respective state governments, the authorities are indirectly accountable to the federal government for the proper u se of the financial resources in accordance with rules and regulations. Thus financ ial and process accountabi l ity are involved.
Also consistent with the scope of account ('accountabi l ity for what' ) framework, the relationship between the Malaysian local authorities and the auditor general may involve accountability for fiscal compliance (accountability for probity and legality/financial accountabil ity) and for the exercise of appropriate procedures (process accountability). The auditor general is authorised by the federal government to mon itor the authorities' use of funds or financial resources in accordance with rules and regulations. In add ition, the auditor is also authorised by the government to carry out a performance audit on local authority programmes/services (source: the Auditor General
Department of Malaysia, accessed on 20 Dec. 2007). In this regard,
the authorities are accountable for the results and ·outcomes of their programmes/services; that is, performance/managerial accountability is involved. Although only an informal/indirect accountabil ity relationship is involved, the authorities should be responsive to any questions or concerns related to financial and programme performance raised by the auditor and indirectly accountable to the auditor general as the oversight body.
The accountabi l ity relationship between Malaysian local authorities through the mayor/president and the panel of counci llors involves a hierarchical accountabi l ity. The local authorities, through the mayor or president, are accountable to the panel of council lors who are then accountable to the respective state government. Therefore, the scope of accountability or accountabil ity ' for what' is the same for the state government