Malaysia is a federal constitutional monarchy with the broad powers of local governments (13 states and three federal territories – 151 local authorities).

Local Authority in Malaysia is divided into three categories as follows:

• City Council / City Hall – local authority that has been upgraded from Municipal Council status after having successfully achieved certain criteria, which include the total population exceeding 500,000 people and the annual revenue exceeding RM100 million (~21,2 million US Dollars).
• Municipal Council refers to local authority in urban or town center, which has a total population exceeding 150,000 people and an annual revenue exceeding RM20 million (~4,2 million US Dollars).
• District Council refers to local authority in rural area. The criteria stipulated for a District Council status is having a total population not exceeding 150,000 people and annual revenue less than RM20 million (~4,2 million US Dollars).

There are 151 local authorities in Malaysia:

• 20 City Halls / City Councils (CH/CC)
• 40 Municipal Councils (MC)
• 91 District Councils (DC)

Public sector auditing is carried out by the National Audit Department
of Malaysia (NAD). The audit at local levels is also performed by NAD branches located in every state. There are no specific Regional and Municipal Audit Institutions. Local audit is conducted in reference to standards and guidelines developed by SAI. No specific methodologies developed at the local level.

SAI Malaysia mandate for the public sector auditing is stipulated in:

• Federal Constitution (Article 106, Article 107). The account of the Federation and of the States is audited and reported on by the Auditor General.
• Audit Act 1957 (Section 5, Section 6, Section 7, Section 9). The Auditor General shall in such manner as he may deem fit examine, enquire into and audit the accounts of any other public authority.
• Local Government Act 1976 (Section 60). The Auditor General, throughout the financial year, inspect and examine the accounts of the local authority, the auditor in his annual observations may state his opinions upon all questions arising out of the certificate given by him.

NAD carries out the following audit types^[1]:

• Attestation audit – to certify Financial Statements
• Compliance audit
• Performance audit
• Government linked companies audit

SAI Malaysia performance a financial audit every year for each Local Government (City Hall, Municipal Council, District Council). Performance audit is conducted selectively (based on sample from 151 Local Authorities).

SAI Malaysia closely interacts with other public institutions: State Governments, Accountant General, State Legal Advisory and Valuation and Property Services Department.

If necessary, NAD resorts to expert assistance. The Auditor General may authorize any person he deems competent to conduct on his behalf and under his direction any inquiry, examination or audit and to report th findings thereof to him.

The results of audit engagements are published in Auditor’s General Report (LKAN), submitted to Parliament, State Legislative Assembly, Public Account Committee (PAC), Auditor General Report Action Committee (JTLKAN) and monitored through Auditor’s General Dashboard (AGD).

^[1] Starting 2024, the SAI only conducts financial audit and performance audit. Compliance audit findings are included into performance audit reporting.