Category: Public sector

Introduction
Today’s column concludes the review of the Auditor General Report on the audits of the ministries, departments and regions for the year 2010. Readers will recall that the report was delivered to the Speaker of the National Assembly – conveniently for the first time in several years – within the statutory deadline but also conveniently, after the last sitting of the Ninth Parliament so that it could not be tabled and its contents become available to the public prior to the November general and regional elections. Clearly the Speaker of the National Assembly and PPP/C presidential aspirant Mr. Ralph Ramkarran, S.C. did not think it important enough to have a final sitting of the National Assembly for the tabling of the report.

Any reader of the report will be struck by the repetitiveness of the matters reported – and for the more discerning, the matters not addressed – in the report. We get excited at the level of abuse of the Contingencies Fund by the Minister of Finance. But neither the Audit Office nor the Public Accounts Committee appears to have recognised that it was not enough to consider only whether the payments from the Fund met the criteria of “urgent, unavoidable and unforeseen” required before the issuance of a drawing right by the Minister of Finance.

There is no evidence from the report that the Audit Office examined any of the following transactions financed from the Contingencies Fund: the sum of $198 million as a provision for Amerindian development projects; or $7.971 million for installation of water and electricity at the Amerindian Dormitory at Liliendaal; or $70 million for the purchase of accommodation items for the GDF; or $75.6 million to complete the National Swimming Pool (sic); or $38 million for ten compactor trucks or where they might be; or $12 million for furniture for Region 3 schools; or $26.3 million for resurfacing the cycle and car park at the National Park.

Epiphany and Nelson’s eye
The 2010 report has departed from its long-held policy of spelling out annually the expenditure from the lottery funds and was only willing to state that the money was spent “in accordance with the guidelines for access to the Lottery funding, which included funding for activities that promoted cultural and youth and sports development, financed medical treatment overseas and economic support for disadvantaged groups, among others.” The Audit Office has also reversed its position that the failure to put the proceeds into the Consolidated Fund is unconstitutional. Its epiphany it seems was the result of an opinion from the Attorney General who is also a member of the Cabinet. To most persons – but clearly not to the Auditor General – it did not seem obvious that it would take a most unusual and compelling set of circumstances for a member of the cabinet to tell the Audit Office that the Cabinet had been acting unconstitutionally for more than a decade!

Another interesting feature of the Deodat Sharma/Mrs. Geetangali Singh Audit Office is the failure to delve into transactions involving hundreds of millions of dollars of undisclosed and unaccounted funds across the ministries. The Audit Office has never, never commented on the annual sum of $100 million allocated to the Ministry of Culture, Youth and Sports for arts and sports development. Had it not been for the fact that this column has regularly criticised this annual allocation by the National Assembly in the Estimates, I would have suggested that, bad as it is, the Audit Office is unaware of the existence of the Fund. That they must have been aware of it points to a more serious matter: that they are complicit in hiding from taxpayers any information on how the $100 million per year is spent reportedly under the direction and control of no more than two individuals.

Creative financing
In 2010 it became clear that the Minister of Finance was using the dormant accounts to plug the National Budget, again revealed in the most bizarre language from the Audit Office. We learnt from the 2009 Audit Report that two accounts No. 201210 and No. 201360 with balances of more than $3.2 billion dollars “were closed in July 2010”. It was not until one turned to Note 2 to the 2010 Accounts that we learnt that $30 billion held in a number of dormant accounts in the 2000 Series Bank Accounts were transferred to the Consolidated Fund in July 2010. Yet, the 2009 Audit Report mentioned without comment only the two inactive accounts (No. 201210 and No. 201360) of nine accounts being closed in July 2010 – an interesting omission indeed. While there is nothing fundamentally incorrect in transferring these balances formally into the Consolidated Fund bank account, the timing seems as good a reason as any for the 2010 Audit Report not only to refer to the closure by a side wind, but for the embargo on the report until after the 2011 elections.

Given the significance of the amounts, a competent auditor would have reported to which account the balances were transferred and addressed the accounting treatment. So with the implicit assurance from the 2009 Audit Report that the creative practice was accepted without any adverse comment, the Finance Minister moved on to even bigger sums. Paragraph 86 of the 2010 Report refers to the sum of $11.117 billion as Miscellaneous Income, the net result it says, “of the ‘closure’ of inactive accounts, and retiring long outstanding obligations in relation to the issuance and redemption of Government Securities.” I doubt whether this accounting treatment is appropriate since these are not new funds. At all times they formed part of the Consolidated Fund since constitutionally there is only one fund and that is the Consolidated Fund with the Contingencies Fund being a sub-fund thereof.

God of small things
The title of the book by the Indian women’s activist Arundhati Roy seems an apt description of the approach of the national Audit office. Instead of addressing these big ticket, big picture issues of principles and risks such as the discretional spending at practically all the Ministries, the Audit Office prefers to report to the nation about a few thousands here and a few thousands there. Instead of reporting on the creative accounting by the Ministry of Finance it tells us that “Log books were not maintained for twelve of the Ministry’s fleet of vehicles, whilst partial submissions were received for five vehicles. In addition, an examination of the log books submitted for the five vehicles revealed that they were not properly written up in that journeys were not always authorised, fuel was seldom recorded, and there was no evidence of supervisory checks”.

Nor does it bother to report that in at least one Ministry one of its official vehicles is used by the daughter of a Minister or that that Ministry also controls and spends as it wishes tens of millions of dollars allocated by the National Assembly. I am sure taxpayers would much prefer to hear about the whereabouts of all the vehicles, tractors, excavators and equipment than about the vehicle log books of a few of them. For many ministries and departments the Report has absolutely no finding including the Office of the President where overseas travel by the President and his entourage is the order of the day and the infamous Ministry of Housing and Water for which there is only a single paragraph of a prior year matter which has not been resolved – the tabling of the 2010 reports for the Guyana Water Inc. and the Central Housing and Planning Authority.

Likes and dislikes
Is Mr. Sharma for real and does not think the circumstances of the payment of four billion dollars to GuySuCo or all the concerns about accountability in this Ministry, both in 2010 and prior years are worth addressing? If he thinks that the laying of annual reports of these entities is so important for the Ministry of Housing why is the tabling of the report of the Guyana Revenue Authority for several years or the annual reports of NICIL by the Minister of Finance who also is the Chairman of NICIL not important? Or, for that matter for the NIS, which is reeling from a loss of $5 billion invested in CLICO by the Jagdeo/Luncheon/Singh triumvirate?

Conversely, the Audit Office seems to have a special liking for the Ministry of Health and the award of contracts to the New Guyana Pharmaceutical Corporation by the Cabinet and the National Procurement and Tender Administration Board for the supply of drugs from India. The national press however gorges on this as red meat to a carnivore ignoring the more fundamental questions as to why the country which has an under-employed High Commission in India cannot facilitate the purchase of the drugs and other medical supplies which the Government pre-finances.

Not in our stars
Another area that receives no attention is the management of the billions of dollars of loans taken by the Government, particularly those for specific purposes, many of which will come up shortly for repayment. The loan schedule appended to the report has some significant errors of both omission and commission with vague dates of repayment such as “5 years following disbursements”. None of the reports of the Public Accounts Committee has ever referred to these appendices and one wonders whether it ever considers them.

The fault lies however not only in our stars but in the composition of the Public Accounts Committee which has largely been poorly constituted. A parliament that faces some of its greatest challenges as it seeks to assert its standing as one of the arms of the state now comprises some of the most inexperienced members I can recall since 1957. There are only a few who stand out as being capable, willing to work hard and with any relevant experience. Thankfully former Finance Minister Carl Greenidge meets those standards and while a couple of the ladies on the PAC during the Ninth Parliament could not be faulted for trying, they were clearly out of their depth.

Good luck
Dr. Ashni Singh as finance minister, and Mr. Deodat Sharma whose lack of a suitable qualification means that he cannot be appointed substantively to the post of Auditor General, have had an easy five years. Dr. Singh was also able to maintain a cordial relationship with the late Winston Murray who was a necessary backup to Ms. Volda Lawrence as PNCR nominated Chairperson of the Public Accounts Committee. The more likely person for appointment as Chairperson, Mr. Carl Greenidge has so far not had a good relationship with Dr. Singh and it probably will not get better.

This is an interesting background against which the 2010 report moves for detailed consideration by the PAC, a standing committee of the National Assembly. In the past, members like Bibi Shadick have used the PPP/C majority on the Committee to influence the areas for consideration and emphasis. This Committee will now comprise only nine persons and with the PPP/C losing the majority, the Committee is expected to take a far closer look at the report. In the past too, the Committee was deeply influenced by the Auditor General himself and Finance Secretary Mr. Neermal Rekha, as resource persons acting more like prosecutors.

Conclusion
If as is clear, the Report is itself deficient, then the PAC will have to do much more than just look at the report paragraph by paragraph and proceed to “blast” the unfortunate officer sent to defend the Budget Agency on the limited findings and recommendations contained in the Report. The Committee should be insisting on time frames to be given to implementing the recommendations made year after year. They should also be asking the Auditor General why over a five-year cycle he has not found it necessary or possible to audit the various funds and entities which are allocated huge sums each year but for which there is no accounting to the public.
Most importantly the PAC needs to have financial and technical resources at its disposal rather than rely entirely on the erratic attendance of part-time members supported by a couple of individuals with their own interests to protect.

Within the existing construct, the PAC cannot properly carry out the functions required of an oversight body to which the nation looks for proper accounting of state funds. It must use the existing composition of the National Assembly and itself to fix the structural problems inhibiting its scope.

Introduction
Today we continue the review of the Auditor General Report which we commenced a fortnight ago on February 19, 2012. In acknowledgement of the hard work the print media have been doing to publicise some of the report’s major findings, this column has been looking at the broad and deeper issues of the role of the Ministry of Finance. These include the perpetuation of lawlessness instead of leadership, poor accounting rather than proper accountability and mismanagement of state resources rather than the strict management of finance.

Before proceeding it is important that we note two matters in connection with the “specialty hospital,” inspired if not financed by the Indians, and the Chinese ferries at a total cost of close to US$20M. A diligent search of the parliamentary records from 2008 -2011 reveals that no loan agreement was tabled for either of these projects and one can only speculate on how these are to be financed.

Hospital and ferries
It is a matter of public record that $179M of taxpayers’ money has been spent on the specialty hospital, a brainchild of former President Jagdeo. In the absence of any loan agreement the country may have to expend a yet undetermined sum on a project that is still – as far as the National Assembly is aware – at the stage of “preparatory studies and designs.” For those persons who are confused by the rhetoric about the “financial papers,” this is the problem. The National Assembly approved what appeared to have been an excessive and still to be accounted for sum of $150 million on preparatory work, but the super-confident Finance Minister decided, without any approval, to proceed to spend another $29 million on mobilization work.

With respect to the vessels, the draft of which may be too deep for the Essequibo at low tide, whether the financing is by way of loan or a grant any prudent financial manger would ask about the reasonableness of the value. If it is a loan then the External Loans Act 74:08 is being breached.

The Audit Office has never carried out specific audits of any of this contingencies spending, other than to say that they did not meet the criteria set out in section 41. Failure to address these has driven concerns that by its conduct, the Audit Office is actually encouraging such financial adventurism.

For example, in 2010 the Ministry of Agriculture expended $36 million on a long-boom excavator for Wakenaam and $18 million for one excavator. Taxpayers would expect the state auditor to assure us that these exist and are properly accounted for. Similarly there was the $3,730 million to the Ministry of Housing and Water that was never properly explained.

Local loans
The management of loans is another area of weakness in the country’s public finance system. On the receivable side the audit report provides the following information:

While the report views the amount receivable from Linmine as very remote, the position of GPL can be no different, with its massive line losses and financial outflows which the state has to keep subsidizing. And I do not think there is any person who thinks the Guyana Airways Corporation exists, let alone has the ability to pay any debt owing to the state.

In my view, the entire $13.6 B should be written off and charged against the Consolidated Fund. To keep it there is to live in a dream world, one that does not exist. Moreover, one needs to ask whether GuySuCo is not similarly indebted to the state or are those regular transfers no more than annual subsidies in disguise?

Management of spending
During 2010 the Minister of Finance, after presenting the biggest budget ever, went back to the National Assembly on three occasions, seeking supplementary appropriations for $9.2 billion, for all kinds of purposes. Yet, year after year, many of the largest ministries are unable to spend the sums originally allocated while others seem to engage in spending sprees as the year draws to a close.

The table below shows four of the largest budget agencies which in 2010 were unable to spend their budget allocations. Yet year after year they are allocated even larger budgets by the National Assembly on the recommendation each year of the Minister of Finance.

Strangely the Audit Office offers advice that the ministries should begin their spending earlier in the year without any apparent recognition that the process cannot really begin until the budget is approved. The Audit Office, of all places, should recognise too that inherent in the haste to push projects is the risk that procedures and controls will be overlooked, facilitating fraud, sloppy work and loss of resources; the very matters against which the the office is supposed to guard.

Minister’s failure to report
In the 2010 Budget the Minister of Finance had budgeted for the receipt of $6,150M as Miscellaneous Receipts of Norway funds. In fact none came. So the clever Finance Minister did a novel thing. In place of the $6,472M he brought into the books some $14,381M of which $11.117 B represented “the net outcome of the closure of inactive accounts, and retiring long outstanding obligations in relation to the issuance and redemption of Government Securities. Also included in the sum of $14.367 billionwas an amount of $2 billion, which represented revenue received through the Guyana Geology and Mines Commission.”

Yet, the Minister did not think that this matter was worthy of a comment in his report to the National Assembly on the performance and outcome for 2010 when he presented the 2011 Budget for approval. That in my view borders on deception and one has to wonder whether this was repeated in 2011 – an election year in which an even larger sum ($14 billion) was projected to be received under the Guyana-Norway agreement.

Declining lottery funds
In 2010, the sum of $255M was received as proceeds from the Guyana Lottery Company, being Guyana’s 24% share of the lottery’s gross takings. Expenditure for the year from the fund was $38M, but unlike previous years, the 2010 Report provides no details of the expenditure except to say that “The above expenditure was within the National Sectors previously identified and was in accordance with the guidelines for access to the Lottery funding, which included funding for activities that promoted cultural and youth and sports development, financed medical treatment overseas and economic support for disadvantaged groups, among others” – hardly the kind of generalisations one expects from any auditor, let alone the state auditor.

The Audit Office appears to have reversed an eleven year view that the lottery funds should be credited to the Consolidated Fund, apparently relying on a self serving “opinion” by the former Attorney General. I have seen a copy of that note from the Attorney General and in my view it defies both logic and law, but appears to have been welcomed by the Auditor General.

Deposit funds
The public accounts continue to treat cavalierly with various deposit funds it holds, representing sums of money that should be paid out at some future time. Particularly, there is uncertainty surrounding the accuracy of $1.477 billion shown as deposits held for investments on behalf of the Sugar Industry Labour Welfare Fund, the Sugar Industry Rehabilitation Fund and the Sugar Industry Price Stabilisation Fund.

What is worse is that the Audit Office which is charged with responsibility for auditing these funds has not done so, in two cases for more than thirty-two years! That is scandalous and it is surprising that the union has not taken up the issue in relation to the Sugar Industry Labour Welfare Fund.

A similar concern exists in relation to the Dependants’ Pension Fund, the deposit account for which shows an amount of $501.269M. However, the audited accounts of the entity for 2010 reflected a balance of $666.376M, resulting in an unaccounted difference of $165.107M between the Deposit Fund and that of the entity. Sadly, this has been the state of the account for several years.

To be continued