Introduction
On Wednesday last, the acting Auditor General was confirmed in the position. Although many of us would have preferred to have a professionally qualified accountant to be appointed, it is now a fait accompli. We therefore have to condition our minds that Mr. Sharma will be serving in that capacity for the next ten years. This is assuming that no legislation will be passed to alter the retirement age of 65.
I am nevertheless on record as having recommended a fixed term appointment, say ten years, in keeping with international trends, to further enhance the independence of the Auditor General. Mr. Sharma would have already served seven out of those ten years. I also hope that he would have realized his mistake when he publicly stated that he could go on until age 65 in his acting capacity.
I congratulate the Auditor General on his appointment in the sincere hope that:
* He will free himself from what many believe are the shackles of government control and influence;
* Recognizing his own limitations, he will take steps to enhance his professional and technical competence by enrolling to pursue a professional accounting qualification, such as the UK ACCA or the Canadian CGA. After all, the Auditor General is the external auditor of all state-owned/controlled companies that require their auditors to be members of the local chartered accountants’ body and to be in receipt of a practicing certificate from that body. In addition, he has to supervise the work of Chartered Accountants in public practice who are contracted to undertake audit services on his behalf; and
* He will engage the services of professionally and technically competent persons to assist him to discharge his responsibility as the watchdog of public accountability; and
* He will now deal expeditiously with the conflict of interest that exists in the Audit Office since 2006.
Recapitulation of last week’s article
Last week, we carried out an initial review of the 2011 Auditor General’s report and noted the following:
* The report was presented within the statutory deadline. We, however, cautioned that quality as well as adequate and comprehensive audit coverage should not be compromised in the interest of timeliness;
* The overall opinion on the financial statements did not reflect a “clean bill of health” on any of these statements, and this state of affairs has been coming forward since 1992. This indicates that we have made little or no progress over the years to improve our accounting and financial reporting system. We continue to operate with an outdated and cumbersome system that we inherited from Colonial times. Taken as a whole, the public accounts are really in a bad shape;
* The Executive Summary was not properly structured, lacked quality and was too brief. It also contained no overall conclusion nor any key recommendations, and several significant issues of interest to the public were not reflected; and
* According to the notes to the audited 2010 public accounts, an amount of $33.713 billion was paid into the Consolidated Fund. However, this amount could not be traced to the audited Receipts and Payments of the Consolidated Fund. We were disappointed that the Auditor General did not revisit the issue since it was raised with him in a public forum. We were also careful in not suggesting at this time that an act of irregularity has occurred. However, a detailed explanation is needed, and we are hopeful that the Public Accounts Committee will demand such information from the Minister of Finance. After all, the amount involved is not $33 million but $33 billion!
Today, we continue our discussion of the report by examining the audited financial statements comprising the public accounts.
Budget outcome and reconciliation report
This is one of the 13 sets of financial statements that the Minister of Finance has overall responsibility for preparing and certifying before submission to the Auditor General for audit. Section 68 of the FMA Act 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.
However, an examination of reconciliation report for both revenue and expenditure showed no explanation of the significant variances between budgeted revenue/expenditure and actual amounts collected/expended, as envisaged by the Act. Despite this, the Auditor General concluded that that “the statement as shown on page 2/1 properly presents the End of Year Budget Outcome and Reconciliation Report (Revenue) made in pursuance of Section 68(1) of the FMA Act”. Although the situation had not changed in 2011, this was quite in contrast to the position the Auditor General took in his 2010 report in relation to non-compliance with the Act.
In addition, although the 2011 report did not contain any negative findings on the Reconciliation Report, the Auditor General qualified his opinion on this statement based on a limitation in scope. This is clearly evidence of a “cut and paste” of the 2010 audit opinion without ensuring that the opinion matches with the conclusion contained in the body of the report!
Statement of Contingent Liabilities
A contingent liability is “a future commitment, usually to spend public moneys, which is dependent upon the happening of a specified event or the materialization of a specified circumstance”. The Auditor General quite rightly pointed out that the Guyana Transport Services Ltd. and the Guyana Telecommunications Corporation are no longer in existence, and therefore their liabilities to Bank of India and ITT World Communications Inc. respectively should have been reflected as part of the public debt, and not as contingent liabilities.
Since these were the only two items in the Statement of Contingent Liabilities, the only conclusion that could be drawn was that the statement was incorrect. Instead of stating this, the Auditor General concluded that “the completeness, accuracy and validity of the amounts shown in the Statement of Contingent Liabilities could not be satisfactorily determined”. He then proceeded to issue a disclaimer of opinion on the statement, indicating that he was unable to form an opinion on the statement!
Receipts and Payments of the Consolidated Fund
Article 216 of the Constitution states that all revenues or other moneys raised by Guyana shall be paid into and form one Consolidated Fund. As at 31 December 2011, there were two Consolidated Fund bank accounts:
* The old account number 400, which ceased to be operational with effect from 2004, with an overdraft of $46.776 billion; and
* The new account number 407, which commenced operation at the same date with a transfer of $5 billion from the old account. The account had a positive balance of $535 million.
This gives a net overdraft of $46.241 billion. It is evident that not all public moneys have been paid over to the Consolidated Fund, some of which were kept in other bank accounts. The Auditor General’s assessment was that had the necessary transfers been made, the Consolidated Fund would have reflected a positive balance of $58.776 billion as at 31 December 2011. There were also 11 special bank accounts with balances totaling $4.306 billion that appeared to be funds that belong to the Consolidated Fund.
The overdraft on the old Consolidated Fund bank account was mainly due to the failure not only to maintain a proper cash book since 1988 but also to reconcile the account. At the end of 1992, the account was overdrawn by $26.823 billion, and at the time it ceased to be operational, the overdraft had increased to $44.434 billion. Given the passage of time and the unavailability of the records, it is no longer possible to reconcile this account before closure, a position that the Ministry of Finance also took in response to the observation of the Auditor General. Notwithstanding this, the Auditor General continued to recommend that the account be reconciled first.
The solution is a very simple one: merge the old and the new Consolidated Fund bank accounts and take appropriate measures to ensure that all moneys that are due to the Consolidated Fund are paid over to it. In this way, the account will reflect a healthy positive balance estimated at over $60 billion. In addition, if NICIL ceases to retain the proceeds of the privatization of State assets as well as dividends and other State revenues, the balance on the Consolidated Fund would be significantly higher.
The Auditor General concluded “despite the above observations, the statement as shown on pages 2/8 to 2/14 properly presents the Receipts and Payments of the Consolidated Fund for the year ended 31 December 2011”. This is inconsistent with his opinion that “except for any adjustments, which may have been shown to be necessary as a result of the observations contained in the relevant sections of my report, in my opinion, the financial statements properly present the Receipts and Payments of the Consolidated Fund…” In other words, he has given a “clean bill of health” in the body of the report but he has qualified his opinion on this statement based on a limitation of scope!
Similar inconsistencies were observed in respect of:
* Expenditure from the Consolidated Fund compared with the Estimates of Expenditure;
* Expenditure in respect of those services which by law are directly charged upon the Consolidated Fund. Here, the Auditor General did not report any findings, yet he qualified his opinion on the statement;
* Receipts and Payments of the Contingencies Fund; and
* Statement of the Public Debt.
Next week, we will conclude our discussion on the Auditor General’s report for 2011. In particular, we will critically examine the Auditor General’s comments on the 80 advances totaling $7.691 billion that the Minister of Finance had authorized, and how the Auditor General was able to conclude that “there was closer monitoring of advances issued out of the Contingencies Fund resulting in only four advances totaling $1.146 billion listed below not meeting the criteria”. This is indeed a remarkable statement, given the history of overwhelming abuse in the use of this Fund to meet routine expenditure.
