Tag: Auditor General

Introduction
Sometimes around now, sometimes later, the press and the public are excited when the report of the Audit Office on the accounts of the ministries, departments and regions is tabled in the National Assembly. They feed on reports of Contingencies Fund abuse, unreconciled bank accounts; single sourcing of drugs from the New Guyana Pharmaceutical Corporation; vehicle log books not maintained and improperly kept stock records. More recently a disproportionate amount of time was devoted in the 2008 and 2009 audit reports on expired air fresheners and Baygon and overpayments of $30,000 and $50,000 for the acquisition of purchases.

Not that these things are not important. They are. But the danger to which the press and the public fall prey is that they displace some of the really crucial issues of accounting and accountability that cost the nation billions of dollars annually, paid for by exorbitant rates of VAT and personal taxes. Perhaps a bit too subtly to be noticed, the Audit Office has been downsizing the report even as the causes and cases of wastage and misuse of public funds become more obvious. Not that size alone matters, but compare the report of 2005 with that for 2009. In 2005 the report ran to 1822 paragraphs, this year it is down to 437 paragraphs, and as the accountants would add, “a reduction of 76 %”! The 2008 report ran to 575 paragraphs so the report is well and truly trending downwards.

Strange contracts
Consider too that in 2005 the Audit Office considered it necessary to address audit issues in the Office of the President – one of the serial offenders when it comes to misuse of public funds – in fifty paragraphs running over twelve pages. This year it is down to seven paragraphs over two pages. One of those seven paragraphs is entirely informational with comments, and its inclusion not quite an audit issue.

The information was useful but a bit confusing. It reveals that two contracts were signed in 2010 (sic) in connection with the Lethem to Providence E-Government Project without identifying the other party(ies). The first for US$1.020M was entered into in April 2010 for the supply of aerial and direct burial fibre optic cables and the second, signed on March 23, 2010 was “for the connection of the Globenet System with the terrestrial fibre network in Guyana.” The report notes that the initial fee of US$1M was to be paid in three instalments. It does not say whether these contracts conformed to the Public Procurement Act.

An amount of $353.6M was provided under supplementary provisions in 2009 for which four cheques were drawn by the Ministry of Finance to the attention of the Office of the President! Except for this the only other current year issue with which the 2009 audit report takes objection was in respect of a procurement by GO-INVEST for which the approval of the National Procure-ment and Tender Administration Board could not be located. Is this for real?

In respect of the Ministry of Finance every one of the fourteen paragraphs was a “prior year matter which has not been resolved.” In the Ministry of Local Government it is five out of six issues identified. For the Ministry of Works under current year issue – Roads and Bridges – $5.894 billion, no contract register was maintained making it impossible to validate the expenditure on projects undertaken.

Conspiracy of silence
Under Customs and Trade Administration the report has quietly dropped information on remissions of duties which in 2008 amounted to $70 billion! In fact there is no evidence that the Auditor General has carried out its duty under the Investment Act of 2004 to carry out a process audit of incentives granted under section 2 of the Income Tax (In Aid of Industry) Act or to point out that the government has failed to publish in the Gazette information regarding all fiscal incentives under that act. Readers have to be forgiven for believing that there is a conspiracy of silence when it comes to such matters.

In 2008 the Audit Office found it necessary to highlight in the Executive Summary of its report the failure to appoint the Public Procurement Commission mandated by Article 212 (W) of the Constitution. In 2009 that matter has been quietly dropped while the stage is also being set that could see the elimination of any comment on the unconstitutional accounting and misuse of the Lotto funds. The 2008 report repeated a decade long, strong recommendation that the Ministry of Finance take appropriate measures to comply with the Fiscal Management and Account-ability Act and pay the government’s share of the Lottery proceeds into the Consolidated Fund. This year the report informs the nation – without comment – that the Attorney General has given a legal opinion concerning the deposit and use of those funds in which the AG states that, “There is no legal obligation to transfer moneys therefrom to the Consolidated Fund.”

If the Audit Office had been following the news he would know that this is a matter that is currently and actively engaging the courts in an action brought by citizen Desmond Trotman against the same Attorney General! The AG must therefore be aware of the case and it would seem self-serving, improper and unprofessional for the AG to have ventured an opinion in this matter. This fact should not escape the Audit Office which at the very least should have sought some independent advice on the matter.

Dormant accounts
One issue that caused me some concern is the way two long-dormant accounts were treated in the report. When I did a four-part series earlier this year on that 2008 Report I noted that there were several billion dollars lying in “Static Accounts.” Among these were two rather significant sums: one in Account #201210 EPDS – Buy Back Programme with a balance of $560.9 million and the other in Account # 201360 with a balance of $2.617 billion. The total of these two accounts of $3.177 billion had been lying idle, in the first case for more than ten years more and in the other, for six years.

Here is a background to these accounts taken from the 2008 Report:

Account № 201210 – This arose out of a 1998 grant agreement funded by the World Bank for a “commercial debt” buy-back programme. When the programme came to an end in 1999, the Bank of Guyana which had administered the programme opened a special account in the name of the Government of Guyana with this sum.

Account # 201360 – The amount of $2.617 billion was the proceeds of a loan from the International Development Association (IDA) in December 2003 for Poverty Reduction Support Credit in (a) investments in human capital under the health and education sectors; (b) strengthening of public institutions and improvement of governance; (c) expansion and improvement in the provision of basic services under the water sector; and (d) broad-based job-generating economic growth.

What troubled me was that in the corresponding table in the 2009 report, the amount does not appear and that only a total of $1.6 billion dollars was held in statistic accounts. This is explained by a statement on page 8 of the report that “The (unidentified) Head of the Budget Agency indicated that… accounts No. 201210 and No. 201360 were closed in July 2010.”

Lax controls
Forget for a moment that proper auditing methodologies would not accept a mere “indication” for even three million, let alone $3.2 billion, why are the amounts not shown in the table of special accounts at December 31, 2009, more than six months before they were supposed to have been closed? Audit is about verifying satisfactory documentary evidence, not acceptance of unsupported explanations or indications. Not even a junior auditor or someone with barely passing familiarity with banking and accounting would describe the disposal of dormant accounts with combined balances of $3.2 simply as “closed.”

My concern was partly assuaged when I saw Note 2 to the Statement of Current Assets and Current Liabilities that showed Total Inactive Accounts at December 31, 2009 with balances of $5.1 including the two that the Auditor General omitted in his report. Given the lax controls over bank accounts with no reconciliations having been done for several years, it is dangerous to the citizens of this country for billions of dollars to be left idle and unsupervised for so many years and for them to be casually closed. Think what the $2.6 billion could have done for the Women of Worth project recently introduced!

The Public Accounts Committee
Part of our problem is that the persons who have the duty to oversee the report do not understand finance and accounting. The Public Accounts Committee is chaired by a member of the opposition party in the National Assembly but the majority of the members of the committee are from the ruling party who seem, like most people, to have the capacity to grapple with issues involving a few thousand dollars but not the billions of dollars spent by the government.

We will not have proper accounting and accountability if we do not have a proper PAC that insists on better and more comprehensive audits by the Audit Office. NICIL which manages billions from the GGMC, privatisation, sale of government assets and dividends does not get a mention in the report. No wonder it can show such contempt for the law.

The information on the spending of $3.5 billion dollars from Lotteries proceeds since 1996, has been sketchy. For example, in 2009 $54.2 million was spent by the Ministry of Culture, Youth and Sport “to meet expenditure for PYARG adventure journey, Independence Anniversary etc.” and $1.2 million on the Dr Jagan Memorial football knockout tournament.

Conclusion
Unlike its approach to the 2008 report, Business Page will not examine in any detail the 2009 report which is unfortunately riddled with errors of various types. The extensive analysis on the 2008 report is posted on chrisram.net for those who are interested. Instead next week I will return to the issue of taxation.

Meanwhile this column shares with the Murray family its concerns about his illness and prays for his return to good health. He is absolutely indispensable to the debate on the finances of this country.

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.

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

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.

Health Ministry: fire and non-cooperation
In closing last week’s column, I referred to a mystery fire on July 17, 2009 that destroyed the main office buildings of the Ministry of Health housing its Central Accounting Unit and the storage area for financial and other records. I once worked as an accounts clerk at that ministry and part of my responsibilities was the storage of records in a fireproof steel and concrete building just outside the accounting unit. It was always assumed that the storage area was fireproof.

Apart from the complete loss of a historic building that once housed Queen’s College, the Auditor General reported that the fire destroyed a “significant amount” of the ministry’s accounting records, while others became water soaked in the aftermath. The consequences of the fire were exacerbated because of the ministry’s failure to comply with circularised instructions to circulate copies of contracts together with monthly returns on contracts issued, Tender Board minutes, pay change directives, and other financial documentation to the Accountant General and Auditor General. These are serious systemic breaches that were not highlighted in earlier reports from the Audit Office and had the fire not taken place, the public would have been none the wiser about the non-compliance by the ministry.

In the aftermath of the fire the country was told by the political directorate that they knew who was behind the fire. Yet the debris was removed with undue haste precluding any forensic investigation by the experts. Now that taxpayers have more recent concerns about financial improprieties, despite the expressed knowledge of the politicians, the fire and its causes have long receded and are no longer of any public interest.

Conveniently, the failure by the management of the ministry meant that no checking could have been done on the physical verification of assets, including buildings that had been constructed or completed during the period, and possibly the reconstruction of sensitive records of the ministry. Understandably therefore, the report was only able to consider records examined prior to the fire. No wonder then that of the total of fourteen paragraphs of adverse findings by the Audit Office, only four related to current year issues. And these referred to amounts totaling $290M for capital works, purchases and non-accounting.

The report does not indicate whether the computerised records had been backed up and stored off-site as a standard precautionary measure nor does it make any recommendation on sanctions against those whose non-compliance with instructions added to suspicions about the causes of the fire.

Strange response
The report does no credit to the Audit Office however with its acceptance of inane responses to the findings of the audit. For example in paragraph 324 the issue was the final account of the new Ophthalmology Centre at Port Mourant with a revised cost of $127M. A similar situation arose in the case of the National Psychiatric Hospital rehabilitated for $44 million. The response from the ministry was that the building was completed and handed over! Could no one from the Audit Office point out that that was not the issue being raised?

In the case of $42M transferred to the Basic Needs Trust Fund for the completion of the Mabaruma District Hospital no accounts were submitted. The Ministry of Health was not reported as having responded to this concern which will be all but forgotten within a couple of months.

The Georgetown Public Hospital Corporation
The situation here is no different and there seems little effort at remedying the deficiencies which persist from year to year. Standing out as usual are 1) the non-compliance with the requirement that the corporation’s receipts be placed into the Consolidated Fund since, despite being a corporation rather than a department, it receives an appropriation rather than a subvention; and 2) sourcing drugs worth $592 million from the New GPC outside of the Procurement Act, purportedly ratified by the Cabinet.

The report does not indicate, or suggest that the authors understand how the Procurement Act deals with public corporations, the law’s provisions regarding selective tendering or the distinction between single sourcing and selective tendering. As a public corporation the GPHC is permitted to have its own rules for procurement but these must be approved by the National Tender Board. Where those rules conflict with the act, the act prevails.

On the issue of the procurement of drugs from the GPHC the report indicates that Cabinet approved in July 28, 2008 the procurement of drugs by selective tendering. The procurement from the Ramroop’s company is single sourcing. That is not a fine distinction as is evident from the Procurement Act which requires all procurement to be done by tendering, or under the exceptions set out in sections 26 to 29 of the act.

The approved exceptions are the two-stage tendering process under rigidly defined conditions; selective tendering which requires the approval of the National Tender Board; procurement by means of a request for quotations for the procurement of readily available goods; and single-source procurement, when among other things, the goods or construction are available only from a particular supplier or contractor, or a particular supplier or contractor has exclusive rights with respect to the goods or construction, and no reasonable alternative or substitute exists.

Of course none of these conditions applied but given the relationship of the supplier to the government, then the laws do not matter.

Ministry of Labour, Human Services and Social Security
This ministry is also worthy of note and of the ten paragraphs of adverse findings only one was a current year matter. One of the nine was about an investigation involving irregularities of 8,078 old age pension and social security coupons valued at $13.959M. Some of the officers implicated had made restitutions totalling $3.844M but in March 2007, the Commissioner of Police informed the ministry that based on the advice of the Director of Public Prosecution, the investigations were suspended, perhaps a euphemism for discontinued.

The report tells us of a bank account with an overdrawn balance of $271 million which had been drawn to the attention of the attention of the Finance Secretary several years ago but about which nothing had been done. Such lethargy unfortunately seems to characterise public accountability in Guyana which is once again on a downward trajectory and demands serious attention.

NICIL/Privatisation Unit
Over the years the Lottery Funds came to symbolise the more egregious features of public accountability of post-1992 Guyana, partly because the accounting for the receipt and payment of those funds were in breach of the constitution and the law. What somehow was not on the radar was the case of the Privatisation Unit which according to the Finance Secretary has been “subsumed by NICIL.” That does not appear to be factual as official publications indicate otherwise.

Whether such confusion is deliberate and the reasons for it can only be a matter of speculation but NICIL/PU has/have replaced the Lotto Funds as the source for unlawful accounting and spending of public moneys. As long ago as year 2000 the then Auditor General pointed out that divestment proceeds were not being paid over to the Consolidated Fund. Using a fig leaf, that situation has worsened many times over with not even a mention, let alone a serious comment, in recent reports.

NICIL finds easy cover from the lack of attention by the Audit Office to address this blatant outrage, from the Public Accounts Committee which appears to have overlooked this major violation, from the Registrar of Companies who has not pursued NICIL for its non-compliance with the Companies Act requirement that companies file annual returns and accounts, and from the GRA for allowing a high profile company to operate for umpteen years without any audited accounts.

Missing the forest for the trees
A strapline to the caption of this column is ‘No change.’ A review of the report shows that two hundred and sixty-one paragraphs dealt exclusively with “prior year matters which have not been resolved.” These are shown mainly in summary form. Now compare this with the new issues, each of which runs into several paragraphs but which account for a mere one hundred and sixty-six paragraphs. The total expenditure for the Office of the President (OP) and the Office of the Prime Minister (OPM) amounted in 2008 to $10 billion. Yet, for the Office of the President there are only two paragraphs in the 2008 report dealing separately with two current year issues – one in relation to Lands and Surveys and the other to GO-Invest. In other words, nothing about the discretionary spending in OP is worthy of mention. In the case of the Office of the Prime Minister, there was not a single current year issue, and the only prior year issue was in relation to the maintenance cost of four vehicles! This is unrealistic, unbelievable and just cannot be the product of either a systemic or transaction audit. It is as if the nation is being treated to a game of Trivia.

With all that is happening around us in terms of the financial probity of accounting transactions, it seems that the Audit Office does not have the capacity and or the will to undertake serious and comprehensive audits.

And even when it does any extensive work it is often about vehicle log books, telephone calls’ register, employees’ NIS registration numbers, bank reconciliations and register of books, all very important if the big picture were not as bad as it is. The Guyana Elections Commission (Gecom) and Region 4 received a disproportionate level of attention in the 2008 report in which the findings on Gecom run for 20 paragraphs of details on twelve pages, including adverse comments on expired air fresheners and Baygon. With that kind of time inevitably spent at Gecom one has to be disappointed at the absence of comments on where the real money is being spent.

Region 4 was covered in forty-three paragraphs, the highest for any budget entity and is the only section containing charts, including a pie chart of purchases from a supplier of janitorial supplies who just happened to be the spouse of the Driver/Expeditor.

What is interesting too is that unusually, the report gives extensive details of a special audit of certain purchases by the region. Why the findings of this special investigation are reported in the national report is not clear, when other special reports are supposed to be treated differently.

To be continued