Category: Public sector

Posted on

Predictions of sugar’s demise premature and exaggerated

Introduction
President Jagdeo can be extremely unpredictable if not irrational at times. He must be a speechwriter’s worst nightmare and make his PR people nervous, although he is a gift to newscasters and reporters. He does not like delivering set statements, and even when one has been prepared for him, his extemporaneous and ad lib comments are often the ones that attract more attention and draw more comments. How serious and dangerous that can be from a head of state was on full display with Jagdeo’s recent pronouncement about the prospects for sugar.

There was the President commissioning a water treatment plant in Corriverton, Berbice two Thursdays ago. Here was an opportunity for the President to rally his troops, mobilise his party’s supporters and strike at the opposition seemingly engaged in its own ‘goat-aint-bite them’ circus. It was an opportunity to tell the people, one and all, what the $1.4 billion water investment by the government would do for them, and that it was the keeping of another promise; and to reassure them that they can expect the same level of services as the people in far away Georgetown in terms of access to higher education, state of the art medical facilities, house lots and computers. That while Demerara has only one bridge, he Jagdeo had already delivered one over the Berbice River and that but for the short-sighted constitution, under his watch the country would see its first international bridge, this time linking with Suriname. It was an opportunity of which political dreams are made. He could have dazzled. After all, he was in the party’s home, its playground and base, where he could count on an even more adulatory welcome than that orchestrated for him in Buxton recently.

Sugar in trouble
Instead the President surrealistically misused the opportunity to lament that the Skeldon Factory was not delivering the expected results and as a result the “sugar industry is in trouble.” He did not stop there. Speaking about the US$200 million Chinese-built factory that has had more than its fair share of birth pains, the economist said somberly if it “doesn’t work well the sugar industry is dead.” In case anyone had missed the profound and grave pronouncement he repeated: “It’s dead. It’s as simple as that….”

Responding to the Stabroek News report on the pronouncement, bloggers’ explanations for the President’s outbursts were wide-ranging, not many of them particularly flattering. But perhaps the President might have been told something by one of his unofficial sources in the area, something which he felt he should deal with immediately and publicly. Or that he realises that the failure of the Skeldon factory, the centerpiece of the Skeldon Sugar Modernisation Project is his baby, for which he was prepared to defy the World Bank, informed local public opinion, stark realities and risk US$200 million.

When persons like Professor Clive Thomas, Tony Vieira and Ramon Gaskin were raising doubts about the project – rather than just the factory – and its potential consequences, the President lined up former Guysuco top brasses Messrs Vic Oditt, Ronald Alli and Dr Ian McDonald to sing its praises and the underlying vision. They could not accept that the British would shed their much vaunted decency and cut the Caribbean loose, exposing us to the vagaries and realities of the marketplace. The latter group of gentlemen ignored the clear signs that the preferential markets could not and would not survive a globalised world, that the younger leaders in Britain and France do not recognise or feel constrained by any historical bloodlines, that the Caribbean does not really matter. Most significantly, however, they completely ignored the elementary point that sugar comes from cane grown in the fields. Absent that element, the factory can do little. Fixing that will not serve the problem.

Irrational
Even now the President seems to demonstrate some irrationality by referring to the 36% cut in the preferential price, something that was on the cards long before his government took the plunge and moved into the investment. It was the President who had a big hand in the choice of the Chinese as the preferred suppliers and contractors of the plant, over the more experienced Indians, for reasons that make fascinating speculation. We are learning to our great cost that while the Chinese are good at low-cost production, their mark-ups are huge and when they deliver shoddy or even dangerous products, their powerful and assertive government is ready to stoutly defend.

The President is also bringing fresh insights into the factors and influences that drove the Skeldon Project. He noted in his speech that the government had hoped that it would have produced sugar at a lower cost so that the average cost would have allowed them to “to break even at least at the world market level.” The careful reader would notice that when speaking of successes the President speaks of “my government” but in failures it is “the government.”

But it is his adventure into costs that I find astounding and misinformed and that sent me back to schooldays. Break-even analysis is indeed a necessary management tool used in investment appraisal to determine the minimum level of revenue or sales from production that would be required to cover all the fixed costs like rent, office salaries, insurance, property taxes, obsolescence, etc, and the variable costs like material input, production wages, etc.

Breaking the point of confusion
The relevance of break-even analysis in the sugar industry is to determine the minimum level of production of cane and sale of sugar at their expected costs and prices which would have to be met to avoid a loss. Using assumptions about costs and revenue, the management accountant would prepare a break-even chart to show the break-even point, ie the point at which total costs just equal total revenue. For the President, and no doubt his immediate Berbice audience, that appears to have been a point of confusion.

In a business like Guysuco’s, where there are several estates with their own levels of fixed and variable costs, a break-even chart – even with the limitations inherent in projections and assumptions, both about costs and revenue – is an absolute necessity. Or rather charts, since one should be prepared for each estate to serve as the basis for decision-making in the corporation’s boardroom and the cabinet room of its sole shareholder. The problem is that Guysuco has more than its fair share of financial accountants who can tell you all about the latest IFRS but not since the highly regarded Sugrim Mohan left the corporation decades ago, has there been any management accountant of note to speak with knowledge and authority about costs, their behaviour and their consequences.

Even – or perhaps when – confronting dangers, the President can be rather daring, sometimes recklessly so. So he went on to assure his audience, that even if it meant personally, he would get involved to fix the problems created by a “few people,” to ensure that the factory delivers the kind of results that it should deliver. In 2009 when he announced the turnaround plan, the President also used the word “personally” to describe his actions. Yet, a final copy of the turnaround plan was hardly off the photocopier when it missed its projected targets for the first period and it is on track for doing so again this year. In darts, the chances of hitting the bull’s eye recede with distance from the board. It must be the same with sugar.

Choosing the whipping boys
The President could hardly tell the nation that the plan was an exercise in unguarded optimism, given the prominent role in its preparation played by directors handpicked by him such as Mr Keith Burrowes and Mrs Gita Singh-Knight. Nor could he blame the corporation’s longest serving director Mr Donald Ramotar, the ruling party’s General Secretary and the person who will likely decide on the role Mr Jagdeo will play in Guyana’s affairs post 2011. Nor the Chairman of the Board and the President’s Permanent Secretary Dr Nanda Gopaul, who is only one person away from Jagdeo’s personal involvement in the corporation.

Perennial whipping boys Booker Tate were given marching orders more than a year ago, while Mr Errol Hanoman, appointed CEO after Booker Tate’s departure, left not too long after. Usually, the corporation’s production problems and operational performance have been attributed to unfavourable weather conditions to which we can now add climate change. Conditions have been rather favourable recently so this must wait for another time. Corriverton in pre-election season would not have been a good time and place to blame the workers, whose role as voters is far more important now. And we are no longer hearing about legal action against the Chinese to enforce the clauses in the contract to compensate for poor and late performance. This time, according to President Jagdeo, it is a few people “messing up.” Of course he did not even entertain the possibility that some politicians, including himself, may have been the ones who have messed up. That would be expecting far too much.

Jagdeo’s message
From Georgetown, it did not seem good politics to have been as dramatic and careless as he was, but what is more troubling is the message that the President sent to the Demerara estates, that they cannot survive without Skeldon, their drip and lifeline; to the other stakeholders directly involved in sugar at Skeldon, that the future is far, far from certain; to the workers, that they need to rethink their occupational choices; and to the country, that a PPP/C would not allow Skeldon to fail, no matter what it costs the public purse.

This column was never convinced about the glowing claims about Skeldon but will not be included among those who are now tempted to say, “I told them so.” It has described Guysuco as too big to succeed but I am yet hopeful that the situation is not irretrievable, that we can yet be saved from President Jagdeo’s apocalyptic fears. But it would be if we fail to recognise and accept that the problem goes beyond the factory and its managers. Agriculture Minister Robert Persaud announced during a surprise visit to the factory last week that foreigners would be imported from India to work along with the Chinese in the factory.

That will solve part of the problem while adding significantly to the salaries bill of the corporation and creating more problems with the sugar unions.

It will not solve the problems in the fields which many think are as serious.

Conclusion
If the President does get involved as he has said he might, then he needs to do some housecleaning and would have to rethink his dream team of directors and their turnaround plan. He will need to see how the factory can be organised within the limitations and prospects for the filed operations in Skeldon. He will have to consider how much more money the country can afford to plow into the industry. He will need to ensure that he is advised by at least one competent management accountant and a sugar economist, relying less on spreadsheets done by his financial accountants.

One thing the management accountant will tell him is that there is in that field of accounting a sacred principle that says that sunk costs are irrelevant, that if future inflows and benefits do not exceed future outflows, then cut your losses, and put your money elsewhere. The economist will put it more intelligibly: do not throw good money after bad money.

But then neither of them would understand the overriding consideration of the p word – politics!

Posted on

The 2008 Auditor General Report: No change – conclusion

Introduction
When this series began several weeks ago – this is its fifth and final column, – its focus was a review of the report on the Public Accounts of Guyana, the ministries, departments and regions for 2008. It could not however ignore news about the work of the Public Accounts Committee (the PAC) or the acrimonious exchange between the current chairperson of the Public Accounts Committee and the Minister of Finance Dr. Ashni Singh.

One of the principal functions of the PAC is the oversight of the Audit Office and the review of that office’s annual reports: reports that are always late, are often incomplete and consistently raise more questions than answers. The Committee is one of, if not the only committee of the National Assembly that is chaired by the parliamentary opposition although the PPP/C has a majority on the Committee. Since 2006, five of its members are from the PPP/C, three from the PNCR and one from the AFC. Unfortunately, it is rare that all the opposition MPs attend the same meeting so the government almost invariably enjoys an overwhelming majority at the meetings.

Earlier this week the current chairperson of the Committee, Ms. Volda Lawrence found herself the object of the Finance Minister’s tongue-lashing after she was quoted in a report in the Kaieteur News complaining about the late tabling of the Treasury Memorandum on the reports for the years 2004 and 2005. Apparently the document had been lodged with the Parliament Office which Ms. Lawrence could, but did not verify. Recognising that this was one of the few occasions since his appointment on which the Ministry of Finance met the deadline for any of its parliamentary or statutory obligations, Dr. Ashni Singh went to town on the hapless Ms. Lawrence.

Backlog
Dr. Singh should not have been so harsh – in her capacity as chairperson of the PAC, Ms. Lawrence does no harm to the reputation of his Ministry and government for proper financial management. To be fair, she inherited a backlog problem and as we recall from last week, the PAC did not complete its review and issue its report on the 2002 and 2003 accounts until January 2008. Forget for a moment that it took another ten months before the Ministry of Finance issued its Treasury Memorandum. But timeliness is not its only problem for the PAC. It is evident from its own reports and the responses it evinces from the Finance Secretary that the effectiveness of the PAC and the quality of its reports are not what they used to be.

Not one of the nine members of the Committee has any training or experience in accounting or auditing and incredibly its three advisers are persons whose work it oversees – the Auditor General [ag.], (Mr. Deodat Sharma), the Finance Secretary (Mr. Neermal Rekha), and the Accountant General [ag.] Mr. George Abrams.

Standard governance procedures permit committees access to independent professional advice such as attorneys at law, engineers and accountants. But at the highest level in the land, that is not considered a good idea. For example, there is no evidence that the PAC ever thought of approaching the Ministry of Legal Affairs on any legal issues such as the practice with regard to presidential control of the lottery funds or the non-establishment of the Public Procurement Commission.

Meaningful advice
To the extent that the Committee notes the recurring practice about the lottery funds, it accepts the weak statement from the Ministry of Finance that it is awaiting a policy decision on the matter. Who from, the Minister of Finance or Cabinet, and why does it take more than ten years for such a decision to be made? The obvious fact that the interpretation of the Constitution and the financial statute is a matter for a legal opinion and, if necessary, a ruling by the court, seems to have escaped the PAC. In the process, the President is allowed to continue this practice more than ten years after it was first challenged as unconstitutional and unlawful by then Auditor General Anand Goolsarran. Failure to seek a position on this has permitted the spending of more than $2.5 billion without constitutional authority or parliamentary approval.

The work of the PAC is not an easy one. It is tedious, time-consuming and technical. It effectively oversees the receipt, expenditure and accounting for billions of dollars annually. Its members should be aware of and understand the financial provisions of the Constitution, key legislation such as the Fiscal Management and Accountability Act, the Procurement Act, the Audit Act and the revenue laws. Its secretarial support is mainly administrative help from the Parliament Office and the minutes of the Committee reflect procedures and proceedings that seem archaic.

Attendance failure
The demands on the members of the PAC are sometimes quite formidable. In the second fortnight of June 2004, the Committee met on six occasions, rushing to catch-up with its own backlog even as it is criticised by one of its “advisers” for being responsible for the delays in the accounting cycle. Its difficulties are made no easier by its politicisation, the absence of access to relevant expertise and having as its three advisers – rather than as resource persons – some of the very persons responsible for the poor level of financial management in the country.

Several years ago, Mr. Stanley Ming PNC member of the PAC, had lamented the committee’s ineffectiveness and apparently had stopped attending meetings of the Committee as a mark of protest. But attendance is a wider problem. The attendance record of the members of the Committee at the ten meetings held between June 14 and to July 26, 2004 was as follows:

Cyril Belgrave – 8; Indra Chandarpal – 8; Pauline Sukhai, Komal Chand and Winston Murray – 6 each; Volda Lawrence – 5; Lance Carberry – 3; Donald Ramotar – 2 and Stanley Ming – 0. This works out at an attendance of 60% for the PPP and 28% for the PNC, numbers that eloquently speak for themselves and about the Committee. The minutes of the PAC including the attendance of its members are available but are never publicized. Perhaps those who boast of the effectiveness of the PAC will pause to consider how seriously its members take their obligations in their financial oversight function. It was not unusual in 2004 for attendance to be three, with six of the persons absent, either with or without excuse or occasionally “with leave.” That the PNCR has allowed this situation to develop and worsen is an indictment of that party and an explanation and apology are owed to the public.

Benefit of foresight
One of the advantages of the delays in the work of the PAC ought to be the benefit of foresight since the PAC can test the responses and assurances by the Government on the findings of earlier years against findings on similar matters contained in the reports of the later years.

They do not do this. If they realised the seriousness of this they would probably have asked for at least a part-time accountant or former members of the staff of the Audit Office who could be recruited to provide support for their work.

The audit reports on the accounts for 2003 signed by Mr. Anand Goolsarran and for 2004 signed by Mr. Deodat Sharma tell a story of increasing defects. The 2003 gave a qualified opinion in respect of each of ten accounts and disclaimed or denied an opinion in respect of the Deposit Account held by the Accountant General and outstanding advances made under the Act (sic), presumably the Fiscal Management and Accountability Act, and the Statement of Current Assets and Liabilities of the Government.

For 2004, the report was qualified in respect of seven accounts and an opinion denied in six, including the public debt and the statement of contingent liabilities. This represents deterioration, not an improvement, but nothing in the report of the PAC or the Treasury Memorandum suggests that this point was recognised. What the PAC should have called for in their 2003 report was a time-bound framework to arrest the situation. It failed to do so and so the Treasury Memorandum overlooks these as well. The 2004 report of the Audit Office at paragraph 103 Financial Report on Extra-Budgetary Funds tell us that no funds were created in 2004 but wrongly omits to give an account of the closing balances. The report of the PAC simply records that paragraph 103 was considered but nothing else is said about it.

Weak commitment
Of a more general nature, if the Committee wanted to test the commitment and undertaking given in the 2002/2003 Treasury Memorandum by the Government, all they had to do was turn to the 2008 report in respect of the cash and bank balances. The 2003 and 2004 audit reports recounted major and dangerous failings on accounting for dormant and inactive bank accounts holding billions of dollars of public money; b) failure to reconcile these accounts; and c) statements which are not submitted for audit. Such bank accounts hold tens of billions but have not been reconciled in some cases for more than a decade.

On the question of those very accounts, in 2008 there remained special accounts at the Bank of Guyana with balances of $35.051 billion, up from $21.388 billion in 2003 and $13.552 billion in 2004. The only comment on this by the Auditor General is that “the Head of Budget Agency indicated that these matters are being addressed by the Ministry of Finance.” The banality from the Finance Secretary in the 2004-2005 Treasury Memorandum is to say what the balance on the bank statement means as opposed to what the amounts shown on the cash book mean. Even a housewife knows that but the $35 billion seems to be of no import to the Finance Secretary.

On the issue of the Public Debt, the Treasury Memorandum prepared by one of the advisers simply states that the Auditor General, another adviser, was wrong, without saying what the right figure should be. The PAC does not ask why several entities that have not had an audit for decades or which are not properly constituted continue to receive annual subventions, or why the report of the Ethnic Relations Commission does not contain audited financial statements, or why the Minister of Finance has not been tabling annual reports for NICIL and others. The Treasury Memorandum is similarly silent.

While the PAC and the National Assembly may be comfortable with accepting these absurdities on political grounds, the people of Guyana should demand some kind of respect from those who gouge them with unjustified rates and amounts of taxation.

Conclusion
Throughout the Treasury Memoranda is the absence of cross-references either to the reports of the Auditor General or the Public Accounts Committee and a casualness bordering on contempt which reached its zenith in 2004-2005. The 2004-2005 memorandum ought to be rejected as an insult to the nation. It has succeeded in dealing in fifty-seven paragraphs, many of them containing one-liners, with the shortcomings identified in three thousand paragraphs in the 2004 and 2005 reports by the Auditor General.

Yet, the PAC offers commendations to their advisers, at least one of whom treats it with disdain, another who has failed to deliver on his obligations and another whose office continues to shortchange the nation with under-quality work.

There is clearly a crisis in public financial management in Guyana. Those problems cannot all be identified in a handful of newspaper columns. Public financial management has escaped the attention of the accounting as well as the internal audit bodies. The entire financial management system and its oversight require some kind of review. There needs to be a serious self-examination by the PAC, a genuine commitment by the government to public accountability, a president who respects the constitution and a public and press that are prepared to go beyond sensational headlines.

Next week BP will address the proposed amendments to the NBS Act and the government’s efforts to stifle debate in that entity.

Posted on

The 2008 Auditor General Report: No change – part 4

Introduction
During the past week I received an irate call from the treasurer of the Guyana Relief Council complaining that the statement in the 2008 Report of the Audit Office misrepresented the status of the audits of the GRC. The treasurer pointed out that the Auditor General has long since ceased being the auditor of the GRC and that the entity’s audit is done by a private auditor. While auditors are human and make mistakes from time to time, that the Audit Office had not contacted the entity over a period of several years to enquire about their audit, is a serious indictment both of that Office’s procedures as well as its quality control system. A simple letter was all that was required.

I am not at all surprised because as this series has revealed not only does the Audit Office not have the numbers and quality of staff to carry out its mandate, but the resources which it does have are used most inefficiently and are sometimes famously misdirected. It is therefore unable to achieve the mandate set out in the Audit Act, despite all the IDB and other money invested in it over the years. The important has given way to form, with an obsession over designations and positions and the operation of bicycle level auditing in a Cadillac environment of receipts and expenditure, complex organisational arrangements and technological innovations.

Audit risks
Whether in the private sector or the public sector auditing is about risk – risks associated with the budgetary accounting or financial rules, risks related to the control and use of resources, risks concerned with the delegation and segregation of duties, risks of internal and external fraud, systemic risks, compliance risks etc.

The problem for us is not only that all these risks – and more – exist in the public sector, but that there appears absolutely no interest in introducing better controls over public moneys in budget agencies and in strengthening the Audit Office. Just imagine the billions that pass through some of the Ministries or Departments often handled by improperly trained staff, with no internal audit and some fairly archaic systems of controls. If we could save just 5% of the national budget through better controls, we would be saving $7 billion in 2010!

Instead we are misled to believe that things are just fine, that we have the most modern procurement act in the region, that we have annual audits, and that there is no cause to worry. In a private sector company, the weaknesses that are identified by the auditor would run to several pages. In the public sector, the identified weaknesses and errors in some ministries and departments run to no more than a couple of paragraphs.

Clearly, some thing must be wrong and the Public Accounts Committee should have recognised this years ago. The public and the taxpayers are being shortchanged while the watchdog is uninterested or emasculated. Billions are being spent on e-government while the Audit Office cries out for resources. Scholarships are awarded in a wide range of fields but the Audit Office remains dangerously short of professional staff. And things are getting worse.

New approach required
That level of incompetence in the proper sense of the word also allows for a fair amount of absurdities. Take for example the statement made in 2008 at a press conference by the President who said in relation to the Lotto funds: “What happens now, I think, is that they transfer a part of it to the Consolidated Fund. If there is a $50 million project, the sum required is transferred to the Consolidated Fund,” he said. He knows that that is not what happens. It was he who negotiated with the Audit Office – in complete disregard of the Constitution – that the moneys received during each year would first be placed in a special bank account and only the unspent portion would be transferred to the Consolidated Fund.

As government accounting becomes more decentralised, as the sums involved increase substantially, and as the public service comes more under political control, a new approach needs to be taken to audits in the public sector. The culture of self-help in the public sector, the empirical and anecdotal information on frauds and embezzlements, and the complex arrangements that are often necessary in particular cases, make the traditional approach to audits entirely inappropriate. There is a clear, compelling and urgent need for the introduction of strong internal audits in each ministry and department to support the external auditors who often hardly have the resources to make more than fleeting annual visits.

Assuming it is allowed to function properly, an internal audit unit can bring substantial savings, enhance efficiency and improve service delivery that no amount of Value-For-Money audit can produce. Unfortunately such a view would be considered too revolutionary for Guyana where weak systems and procedures are the order of the day.

How the government thinks
The official government line is best gauged from a document known as a Treasury Memorandum, prepared by the Finance Secretary in the Ministry of Finance, addressed to the National Assembly and setting out the comments and action that the Government intends to take in response to the report prepared by the Public Accounts Committee following its review of the report of the Audit Office. The last two such Memoranda were dated April 26, 2006 and November 7, 2008 in respect of the years 2000 and 2001, and 2002 and 2003 respectively. These are not encouraging. They indicate that very little effort is placed in the preparation of the memorandum, reflect a cynical interest in improving public sector financial management, demonstrate that the author seems to know little about a key financial law, and evidence a contempt for the National Assembly.

But then the Finance Secretary Mr. Neermal Rekha probably takes his cue from President Jagdeo who in 2008 “tasked the Minister of Finance Dr Ashni Singh to explain to the media how to interpret the Auditor General’s report on government accounts, saying that there is a great deal of illiteracy in the treatment of financial matters.” (Stabroek News August 25, 2008). As President Jagdeo went on to demonstrate his understanding of critical issues relating to the misuse of the Contingencies Fund and the Lotto Funds it was obvious that his statement about illiteracy extended beyond and above the media or the public and that he was either misleading the public or himself did not understand the report.

Cut and paste
A comparison of the two memoranda will indicate the extent of the cut and paste done and the serious deficiencies which they contain. That kind of evidence and the fact that neither the Public Accounts Committee nor the National Assembly has publicly commented on them offers little hope of improving public accountability in Guyana any time soon. Let me give some examples.

Paragraphs 15 of the 2006 memorandum and 17 of the 2008 memorandum are identical in every word. They say that the Financial Management and Accountability Act (FMAA) has been superseded by the Fiscal Management and Accountability Act 2003. That statement is only partly true. The FMAA has not been repealed in its entirety. It still requires for example that any remission of any taxes be authorised by some Act of the National Assembly. That provision makes unlawful the waiver of fees and licences offered by the President to yellow cabs, clearly indicating and implicating a collusion of ignorance.

The same paragraph assures the National Assembly that “with the introduction of the Integrated Financial Accounting and Management System (IFMAS), the Accountant General would be in a better position to access information from that system in order to prepare and make his consolidated submissions to the Auditor General within the specified time frame.” We noted earlier in this series that some of the accounts were in such a state that they were unauditable and as is well known, the accounts and the report by the Audit Office are routinely late. What is less well known is that no financial reports of other accounts approved by the Minister of Finance as required by section 73 of the Fiscal Management and Accountability Act are ever presented for audit. It seems too that section 69 of the Act is not complied with in its entirety and the debts of “other levels of Government and Public Enterprises” are similarly not presented and audited.

Diversionary tactics
In terms of delays, the Finance Secretary demonstrates remarkable confidence and even contempt for the National Assembly when he blames the Public Accounts Committee for being responsible for the longest delay in the accountability cycle owing to the length of time it takes to deliberate on each year’s public accounts. That does not of course mean that the PAC is not terribly inefficient and ineffective or that the national assembly itself takes sufficient interest in the report of how the billions it allocates annually are spent. Instead, whenever the report is presented there is a photo-op, some banal statement about VFM, and how accountability has improved since 1992!

On the issue of the Contingencies Fund the 2006 memorandum described the abuses referred to in the audit report as “perceived” but undertook that “recourse to the Contingencies Fund, outside of an unforeseen circumstance, will be obviated with strengthened public financial management, including improved planning and budgeting, earlier presentation of the national budget, stricter monitoring and control, and constant review and evaluation of projects and programmes.”

Arrogance comes to the fore in the 2008 memorandum responding to persistent concerns of violations of the Fund, supported by clear and itemized examples of breaches. The Finance Secretary dismisses these, stating that “every advance is brought to the National Assembly by way of a supplementary financial paper and is therefore subject to full parliamentary scrutiny”. Somebody either does not understand or does not want to understand. The concern of the Audit Office is that the payment does not meet the eligibility criteria of being unforeseen, urgent and unavoidable and that any delay would harm the public interest. It is not about whether or not the advance comes before the National Assembly for clearance.

The Lotto Funds
The same kind of cleverness is evident with the money received from the Lotto Company. It is now public knowledge that the issue is the breach of the Constitution which requires all receipt of public moneys to be placed in the Consolidated Fund and expenditure therefrom approved by the National Assembly. Instead the money is placed in a separate unlawful bank account and used by the President to make payments.

Instead of addressing the issue of the breaches of the Constitution and the law, the Finance Secretary not too subtly avoids them, but simply tells us “as the Government had indicated previously, that all sums deposited and withdrawn from that [special] account are properly accounted for.”

That is not the point Mr. Rekha, so please do not treat us as if we are that stupid.

To be continued

Posted on

The challenge to Minister Singh and the Stats Bureau was for a rational explanation of the dramatic turnaround in the fourth quarter of 2009

I refer to my letter of July 4, 2010 in which I addressed the issues raised by Mr. Rajendra Rampersaud in a letter dated June 28, 2010 on the April 2010 Country Report by the Economist Intelligence Unit (EIU). In my letter I indicated that I would subsequently address the reaction of the Minister of Finance Dr. Ashni Singh to the same EIU Report. I now do so.

Let me first disclose my own long-standing relationship with the Minister who I first came to know shortly after he had completed his outstanding education at Queen’s College. He was too young to be registered as a student with the ACCA and his relatives approached me in my capacity as ACCA International Council Representative to intercede with the ACCA on his behalf for special dispensation. My efforts succeeded. When he qualified he asked me to recommend him for membership, a formality which I readily accepted. Our firm’s boardroom still proudly displays a photograph in which he features with Partner Robert McRae when the firm was awarded a recognition with an international body.

I was the only accountant to publicly acclaim his appointment as a Minister, something not even our national accounting body did. For a long time after that, I had, at his request, shared with him, both orally and in writing, my thoughts on issues of interest to his Ministry and our country. There was one request to which I could not accede and that apparently ended what had developed into what seemed to be a very healthy relationship with Ram & McRae and with me.

But notwithstanding his increasingly personal attacks against me the details of my exchanges with him shall remain private even as he makes the unfounded accusation of me as “a self-confessed partisan politician” (GINA release June 26, 2010), and as part of a “tiny cabal” disparaging every transformative Guyana project (MoF Press statement April 20, 2010).

Now to his attack on the EIU whose recent reports on Guyana Dr. Singh claims “paint a misinformed, distorted, warped, and totally inaccurate picture of economic developments in Guyana”, and was “misled and misinformed by one or two political aspirants and spokespersons who pose as independent correspondents and commentators.”

That aside, let us look at some of the issues the EIU April 2010 report on Guyana raised:

1. That Guyana’s operating environment is “characterised by poor infrastructural facilities, high taxes, rampant crime and corruption.” The evidence on each of these is so obvious and compelling that neither Dr. Singh nor the private sector disputes any of them. Surely they are aware of, if not actually suffer from, the daily blackouts despite the unjustifiably huge sums spent on GPL, the failure to keep the promise of tax reform while imposing VAT at an incorrect, inflated rate on several products and services not previously subject to any consumption tax. Lest they say yes, but what about the items that were subject to consumption tax at higher than 16%, I ask how then did the revenue neutral VAT and Excise Taxes produce excess revenues of 48%, much of it wasted in corruption and nepotism on a scale unprecedented in Guyana? As to the EIU’s statement about “rampant crime and corruption” nothing further needs to be said, as the minister well knows.

2. That “following severe contractions in production in the first three quarters of the year, to attain real GDP growth in 2009 would have required an incredibly strong growth rate in the October-December quarter …… Moreover, with import compression thought to have made a major contribution, the government’s GDP growth estimate for 2009 masks the weakness of the real economy.”

Why the ministerial vitriol and bombast in response to this? In 2008, half year growth was 3.8 per cent while in 2009 there was a decline of 1.4%, a cumulative turnaround of negative 5.2%. Full year growth in 2008 was 3.1%, representing a decline in the second half of the year, in stark contrast with 2009 when a decline over nine months was transformed into a huge positive not in six, but in three months. The Bank of Guyana data show that the poor performance continued into the third quarter, so the challenge to Dr. Singh and his independent but voiceless professionals in the Stats Bureau was for a rational explanation of the dramatic turnaround in the fourth quarter of 2009. That is all.

3. That there was “little evidence of what was driving growth during the second half.” Dr. Singh offers in response growth in rice, sugar and gold but does not tell us how sectors that account in total for 17% of GDP can account for a turnaround of 3.8% in six months over 100% of the economy.

He adds that “the [official] numbers are sourced from the sectors themselves and can be verified directly with those sectors,” and that it “is nothing short of absurd and dishonest to call into question these numbers.” It is Dr. Singh who is being absurd and dishonest by conflating production numbers into GDP figures. GDP is a value not a quantity and a 3% increase in production does not automatically translate into a 3% increase in value. Prices will simply be another variable in the GDP equation.

4. Dr. Singh’s anger becomes uncontrollable when the EIU report quotes from a 2009 Business Outlook Survey by Ram & McRae in which 60% of the respondents reported no confidence in the economy. The survey is described as “politically motivated, highly flawed, and designed to distort the facts and present a negative picture of Guyana under the current administration”, and the principal of the firm, (i.e. me) as “a self-confessed partisan politician”.

Dr. Singh has never, as far as I am aware, sought from any of the partners of the firm the methodology or software it uses in the Survey and did not have a problem with the Surveys in 2006 and 2007 when reported confidence in the economy was high. Those findings were then welcome and widely publicized in the state media. Nor was I “a self-confessed partisan politician” when I was asked by him and the President for assistance on certain matters; when his party asked for tax ideas on their 2006 Manifesto; or when I was visited at home by a high priced Presidential Advisor for consultations on a range of issues.

5. Further, Dr. Singh should be careful in impugning anyone’s integrity, professional or otherwise. His own situation where the wife of the Minister of Finance is the de facto head of the Audit Office is unique, a violation of all the tenets of professional independence, and an embarrassment to this country; he was complicit in the untruth perpetrated in the National Assembly over the $4 billion paid to GUYSUCO in 2009, participating in, and contributing to the devaluation of that august body; and complicit too about the error in the VAT rate that instead of consumers paying $12.1 billion in VAT in 2007, they actually paid $21.3 billion, that is more than 75% more! He was, we recall, also centrally involved in the unlawful concessions given to the Ramroop group. These occurrences and circumstances all speak for themselves, and require no elaboration from me.

But I will show faith in Dr. Singh and look forward to a higher standard of integrity and competence from him in, among other things: ensuring that public moneys are paid into the Consolidated Fund and not the Office of the President or special accounts; ensuring a strong, independent Audit Office; publishing of the mid-year report within the statutory deadline set in the Fiscal Management and Accountability Act; tabling in the National Assembly annual reports of state entities required by the Public Corporations Act; ensuring that NICIL, the Board of which he is Chairman, begins to operate within the law and its own constituent documents, including having its accounts audited and filed as the law requires; granting concessions under the Income Tax (In Aid of Industry) Act on an objective basis rather than on political grounds; and taking a stand on the high level of corruption that has engulfed public finance in the country.

I know he possesses the integrity to rise to the occasion. I am less confident about his courage. But hopefully he will reflect on the oath which he took on being appointed, and will recognise that more than at any time, Guyana needs from its Finance Minister this level of integrity and courage. While he struggles with these challenges, I also suggest the temperance and language befitting his position.

Posted on

The 2008 Auditor General Report: No change – part 3

Introduction
I extend sincere apologies to readers for the unavoidable non-appearance of this column last week. To help you to pick up from where the column left off two weeks ago, let us recap the essential features of the recent reports on the government’s financial statements which have been the focus of this series. Over the past few years the reports have mainly repeated prior years’ problems which continue from year to year. In fact, more than half the issues raised in 2008 were in respect of such occurrences. Another feature is the imbalance in the attention paid to issues of minor importance at the expense of really critical matters.

In the previous instalment we noted how the Audit Office spent more time discussing Gecom and its expired Baygon than was spent on the Office of the President, the Ministry of Finance and the Office of the Prime Minister combined. And reproducing all the minute details of the results of an investigation in Region 4 involving the procurement of such items as Christmas decorations for $160,500 and refreshments for $159,180; and how the Audit Office was diverted from reporting on the 2005 Flood accounts and the 2007 World Cup accounts which are its constitutional duty, to being summoned to address Cricket Board issues which are none of its business.

Exceptions
There are some matters which never seem to attract attention. They include the absence of any proper accounting by the Office of the President of moneys paid to and spent by that Office; the creative accounting for overseas travel because such expenditure comes from disparate sources; the employment of persons in one entity such as the “Letter Writing Unit” who are paid by another entity; the absence of line items for some expenditure such as Cabinet Outreach that is consequently not determinable; and the abuse of the system of contract employees which in many cases account for a huge percentage of the persons on the payroll of ministries and departments. It used to be the case where salaries were a fixed cost based on approved staff establishment. Now it is based on the whims and fancy of those who have political control of the ministries and departments.

The Lotto Funds continue to be abused and no doubt used to finance some of the things being carried out from the Office of the President on behalf of the government. Money will still be readily available to dish out under discretionary programmes such as the President’s Youth Initiative without a paper trail to anyone, including certain favoured sports or to buy support from certain communities. One hopes in vain for the Audit Office as the nation’s watchdog to help it stop the abuses.

More than a contradiction
The Audit Office has simply ignored the goings-on at the pool of new unaccounted funds at the government owned and controlled NICIL. With the Lotto not providing sufficient funds, NICIL is now the vehicle of convenience to do – outside the purview of the Auditor Office – odd jobs of road building, contract awarding and now hotel company incorporator. While the deputy CEO of NICIL Ms Marcia Nadir-Sharma was prepared to assail Robert Badal of Guyana Stockfeeds Ltd about governance at Stockfeeds, she comfortably holds the office of Corporate Secretary of NICIL, a company that does not file an annual return under the Companies Act or has held an annual general meeting for around two decades. These governance and legal abominations are not considered fit for consideration by the Audit Office.

It would be paying a compliment to call the Audit Report a contradiction. It is much worse. Yet, the requirement of the Audit Act for that Office to be audited annually has not been met, a fault that has to be placed at the doorstep of the Public Accounts Committee rather than that of the Audit Office. Nor has the Audit Office ever met its obligation under the Investment Act, 2004 to carry out annually a process audit of the incentives granted by the government under section 2 of the Income Tax (In Aid of Industry) Act and to report on this to the National Assembly within six months after the end of each year. It failed to do so even when information comes to its attention as was the case of the unlawful concessions granted to the Ramroop group by the President’s Cabinet under the same law.

Occasionally some matters of interest arise that force a more than perfunctory effort by the Audit Office. An example was the mystery fire at the Ministry of Health, one of the very bad and serial offenders when it comes to public accountability.

Another is when the Office is forced to take up some issue that had already reached the press, such as the misappropriation of revenue at the GRA in 2008 or the wildlife scam when dolphins and anteaters were exported in 2003 from the now environmentally sensitive and conservation conscious Office of the President. The nature of the sums involved and the frequency may have changed but the parties and the players have not.

Staffing
While the report reflects an elementary level of auditing, there is no urgency to address the serious staff shortage in the Audit Office. Despite a vacancy of close to one hundred, the Office augmented its statutory audit capability by less than a dozen for the entire year, and predicts without any hint of embarrassment that it will have its full complement of staff nearly three years hence. This should be music to the ears of the government which is unlikely to want auditors, no matter how friendly, poring over the expense vouchers for spending abuses that accompany national elections in Guyana.

Latest information is that the only professionally qualified person in the Audit Office is the wife of the Finance Minister while the de jure head of the Audit Office has no capacity or hope of being confirmed in the position. The consequence is that several persons in line cannot be confirmed, and there is widespread frustration and low morale among staff.

Qualification and disclaimer
The consequent low technical standard of work reflected in the report explains why despite the egregious cases of abuse, improper accounting and “unauditability” of major transactions involving the Contingencies Fund and the Consolidated Fund, the report on those funds is a mere qualification rather than an outright denial of an opinion, another word for which is a disclaimer.

In the case of the latter, the auditor is effectively saying that s/he really cannot be sure about these accounts, or that a transaction or group of transactions is of a sufficiently significant value that they bring into question the whole set of accounts.

To put this into perspective, the report actually issues such a disclaimer in respect of the Deposit Fund and the Schedule of Government Guarantees to which it devotes in the body of the report, five and two paragraphs respectively!

On the other hand, the report considers less significant and not warranting a similar report the Consolidated Fund and the Contingencies Fund which it states “continued to be abused.” More than a third ($1.573 billion) of the funds drawn out of the Contingencies Fund in 2008, much of it in breach of the Fiscal Management and Accountability Act, had not been cleared at the end of the year. Very conveniently, the Minister of Finance was able to clear these with a stroke of the parliamentary pen in January 2009. By the time of the 2009 audit these would have been lost in the system.

Guyana Book of Records
And here are some of the identified deficiencies with the Consolidated Fund which did not too excite the authors of the report:

$7.868 billion held in special accounts; $10.980 billion held in the bank accounts of “Other” ministries and departments; forty-two inactive accounts with overdrawn balances of $681 million; and the overdrawing of the old Consolidated Fund bank account by $46.866 billion at December 31, 2008. This is on top of the several amounts not deposited into the Consolidated Fund but unlawfully spent by the Office of the President and NICIL, and the failure to account for US$679,756 (G$140.8 million) disbursed by the UNDP to “various Government agencies.” It is presumed that the UNDP does not care too much whether its money is properly accounted for.

Concerning the Deposit Fund, readers might be interested to know that Audit Office could not establish the accuracy of $1.388 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 Stabilisation Fund. Now if there are investments there should be income, but the report fails to say anything about the income accruing to these entities. It tells us however that the Welfare Fund was last audited in 1999 while the other two entities were last audited thirty years ago. That would qualify them for entry in the Guyana Book of Records with the National Science Research Council (1982) providing stiff competition! The absurdity goes on. The unnamed head of the responsible Budget Agency tells the Auditor General “that this is information to be disclosed in the entity’s submission to the Public Accounts [sic]” to which the Audit Office recommends that the head of the budget agency “take urgent steps to have these entities bring their accounts up to date.” A conversation between the auditor and his client can hardly become more farcical.

Welfare and pension schemes not being audited
I compared the 2003 report with that of 2008 and noted, among other things, that despite a critical comment in the 2003 report about delays in the audit of some of the entities under the Office of the President (OP), the Guyana Energy Agency, the Institute of Science and Technology and the Guyana Lands and Surveys Commission were only able to conclude one year’s audit in the five years since 2003. Other OP-controlled entities with audits several years in arrears are GINA (2003) and the Integrity Commission and GO-Invest (both 2005).

Other entities with audits several years in arrears include the Sugar Industry and Labour Welfare Fund – presumably not the same as the Sugar Industry Welfare Fund mentioned in connection with the Deposit Fund – 1997; University of Guyana Pension Scheme (1994); Guyana Relief Council (1994); President’s College (2001); and the National Sports Commission (2004) and the National Museum (1996) which come under the Ministry of Culture and Sports.

Page 220 tells us that the last audit completed for the Guyana Post Office (sic) was for 1999, eleven years ago as a result of which it received a disclaimer of an opinion. The Chairman of this entity is the Head of the Ethnic Relations Commission Bishop Juan Edghill.

Next week we will look at how the government has been dealing with issues raised in the audit reports.