The SAI’s contact with the media has traditionally been a once a year feature. Friedberg (1991) gave the interesting example of an Israeli journalist who refers to the State Comptroller’s annual report as “The Annual Roar”, reminiscent of the lion appearing at the beginning of Metro Goldwin-Mayer movies – “he roars to the right, he roars to the left, and in a gesture of defeat, he drops his head and disappears until the next movie”.
Extract from: Improving Accountability: The Guyana Experience 1985 – 2007
The report of the Auditor General on the public accounts was laid in the National Assembly last Monday. Today, we examine the report to assist the public in understanding the issues contained in it.
Deadline for submission of the report
The Audit Act 2004 requires the Auditor General to submit his report on the results of the audit of the public accounts not later than 30 September following the close of the financial year. The report for 2011 was finalized on 28 September 2012. It was not the first time that the stipulated deadline was achieved. For example, the report for 1992 was issued on 14 September 1993 after a herculean effort, led by the Audit Office, to restore public accountability after a ten-year gap.
Congratulations would be in order for meeting the deadline if the report reflects quality and addresses several major issues that are of concern to the public. On several occasions in the past, the Audit Office took advantage of the Parliamentary recess, carried out additional checks and further refined the report, the overriding consideration being to enhance its quality. For example, the 2001 and 2002 reports were issued one month after the statutory deadline. It should not be over-emphasised that quality as well as adequate and comprehensive audit coverage should not be compromised in the interest of timeliness.
Audit certificate
The Auditor General is the external auditor of the Government, and the most significant aspect of his annual report to the National Assembly is his opinion on the thirteen sets of financial statements submitted to him for audit. The Minister of Finance has the overall responsibility for preparing and certifying these statements. None of these statements was, however, given a “clean bill of health”, indicating that there were reservations of a material nature in relation to the completeness, accuracy and validity of the amounts shown in the financial statements. In fact, eight sets of statements received qualified opinions because of material deficiencies contained in them while the remaining five sets of statements received disclaimers of opinion. The latter is a far more serious matter of concern. One assumes that these opinions were discussed with the Minister of Finance who would have concurred with them.
Taken as a whole, the public accounts are really in a bad shape, and there is no evidence of any action being taken to remedy this most unsatisfactory situation that has been coming forward over the last 19 years. Because of the absence of the public accounts for ten years during the period 1982-1991, the restart of the process was not a perfect one. However, one would have expected progressive improvements over the years subsequent to 1992. Regrettably, this has not happened.
We seem content, indeed pleased, to announce to the world that there are now audited accounts of the Country delivered annually and on time to the National Assembly. But what about the quality of those accounts? In the private sector as well as in other jurisdictions, including international organizations, this would be unprecedented since swift and appropriate action would be taken against management for the slightest audit qualification from the external auditors.
Imagine what would happen to the stock price of a publicly traded company if a qualified opinion is issued on its accounts. One is only reminded of the Enron scandal to appreciate the implications. The energy giant collapsed because of greed and corruption by senior officials as well as their manipulation of the accounts. When word broke out, there was a dramatic drop in its stock price from US$90 to less than $1, as investors began to hurriedly dispose of their investment in the company. Of particular significance is the fact that Enron’s external auditors, Arthur Andersen, had no alternative but to say goodbye to the world for its failure to satisfactorily answer the question: Where were the auditors? The then reputable international auditing firm was too busy cosying up with the management of Enron, despite the existence of all the red flags suggesting that the company was going under.
Executive summary
An executive summary is normally prepared for lengthy reports. It is a condensed version of the larger report and assists the busy executive to understand the main issues without immediately going through the full report. It is self-contained and written in the same sequence as that of the full report. Applying this standard to the Auditor General’s report, one is disappointed at the length and quality of the summary. The report contains 239 pages of commentary. However, the length of the summary is a little over three pages, and there is no overall conclusion nor any mention of the key recommendations contained in the report
The summary appears to have been hurriedly prepared without much thought, and most of it was in effect a complete “cut and paste” using the previous year’s report with appropriate updating of the figures. Of particular note is the omission of the previous year’s comment on the End of Year Budget Outcome and Reconciliation Report to the effect that the Ministry of Finance had not complied with Section 68 of the Fiscal Management and Accountability (FMA) Act. This section requires a detailed explanation, as part of the annual consolidated financial statements, of the significant differences between annual estimates and out-turn, including:
(i) movements in the underlying economic assumptions and parameters used in the preparation of the annual budget proposal;
(ii) changes to revenue and expenditure policies during the fiscal year; and
(iii) slippages, if any, in the delivery of the budget measures.
Although the position has not changed in 2011, there was no mention of non-compliance with the Act either in the Executive Summary or in the body of the report.
In addition, the Executive Summary makes no mention of several significant issues of interest to the public. One is therefore left with the tedious task of going through the body of the report and the 241 pages of accounts to ascertain the position in respect of these issues. The Auditor General has the obligation to highlight these matters and to assist the reader in the interpretation of the public accounts.
Some of the matters that should have been highlighted in the Executive Summary are:
* The requirement for the Minister of Finance to “promulgate appropriate accounting standards to be employed by officials responsible for the maintenance of the accounts and records…”, as required by Section 56 of the FMA Act. The Government’s present accounting and financial reporting system is based on cash accounting which, in the Guyana context, has become cumbersome and outdated, and which has been in place since Colonial times;
* How much revenue was collected and how much expenditure was incurred, compared with the previous year. Was there a resulting surplus or deficit?
* The size of the public debt at the end of 2011 compared with the position at the end of the previous year. What were the new debts that were contracted, and were the related agreements laid in the National Assembly, as required by the Law?
* The continued failure to pay over to the Consolidated Fund the Government’s share of the Lotto proceeds;
* The serious legal and constitutional violations that enable NICIL to retain: (a) the proceeds from the privatization of State entities and other assets; and (b) dividends from certain State-owned/controlled entities;
* The amount of funds held in special bank accounts that are transferrable to the Consolidated and the steps the Government took for the period under review to effect such transfers; and
* The failure to put in place strong and effective internal arrangements, especially at the larger ministries and departments, to assist in prevention and detection of mismanagement, fraud and other forms of irregularities. This is a requirement of Section 11 of the FMA Act.
Some specific issues contained in the report
Lotto Funds: The Audit Office accepted, without the slightest protest, the unsolicited opinion of the then Attorney General, and continues to avoid making any comment on the breach of Article 216 of the Constitution. The issue has been long-standing one between the Audit Office and the Government. As the Government’s legal advisor and a Cabinet Minister, the Attorney General would be hard-pressed to issue an opinion that is not supportive of the Government’s position. Despite the acting Auditor General’s publicly stated assurance that he would revisit the issue, he remained quiet.
The operations of NICIL: The acting Auditor General again defaulted on his promise to re-examine the operations of NICIL to ascertain whether Articles 216 and 217 of the Constitution have been breached. He, however, sidestepped the issue and proceeded to state that the audit of NICIL, as a company, was completed for the years 2002 to 2005 and the related reports were issued. As regards the consolidated accounts, he stated that: (a) draft financial statements were submitted for the years 2006 to 2010; (b) the audits were in progress; and (c) their completion was dependent on the finalization of the audits of NICIL’s subsidiaries.
Special bank accounts:
The special bank accounts, also known as the 2000 series accounts, are “a combination of various project, grant, debt relief and balance of payment accounts”. According to note 2 to the financial statements for 2010, the balances on seven accounts (inclusive of A/c No. 201210 – EPDS Buy Back Programme; and A/c No. 201360 – Poverty Reduction Support) with a total value of $30.535 billion were transferred to the Consolidated Fund on 1 July 2010. The note went on to state that “In addition, account numbers 201210 and 201360 were closed off on the same day”. These two accounts had balances totaling $3.178 billion. It is therefore not clear whether the latter amount was included in the figure of $30.535 billion or whether the total amount transferred to the Consolidated Fund was $33.713 billion.
An examination of the receipts and payments of the Consolidated Fund for 2010 indicates that under Miscellaneous Receipts, amounts totaling $14.557 billion were paid into the Consolidated Fund, compared with a budgeted amount of $6.646 billion. Unfortunately, neither the notes to the financial statements nor the Auditor General’s Report for 2010 gave a breakdown of the amount of $14.557 billion. This highlights the need for adherence to Section 68 of the FMA Act in terms of providing detailed explanations of significant variances between budgeted and actual amounts.
Assuming that the total amount transferred to the Consolidated Fund was $33.713 billion, one is therefore left to wonder how the difference of $19.156 billion (i.e. $33.713 billion minus $14.557 billion) has been accounted for, assuming the entire $14.557 billion relates to the special accounts. However, in all probability, a portion of this latter would be in relation of the budgeted miscellaneous receipts of $6.646 billion, and therefore the difference could be greater than $19.557 billion.
When this matter was raised with the acting Auditor General in a public forum, he seemed unaware of the issue. He nevertheless made a note of it. One is therefore disappointed that he did not address the issue of such a major discrepancy in his 2011 report.
To be continued
