(Part 11)
Commonsense would seem to dictate that public accountability, based on state audit, should apply to all forms of expenditure, irrespective of how or where they are incurred…It makes little sense to study carefully and continuously the payments which are made through the front door while being obliged to turn a blind eye to the expenditure – which nowadays are often equally large in total – taking place via the back door. Indeed the “back-door’ payments are probably in greater need of close surveillance, and more likely to reveal anomalies, questionable policies and transactions…Many big fish, heavily nourished from taxation, swim through unscathed, and their transactions are not systematically studied, except by auditors with no constitutional reporting role…hence the gaps in the front of public accountability are almost totally undefended…In all of this, the interest of the taxpayer, who foots the bill, is often forgotten.
Normanton (1981)
Last week, we began a series of articles on the Auditor General’s report on the audit of the public accounts of Guyana and the accounts of ministries/departments/regions for 2012. We commenced with a review of the overall audit opinion on these statements. This is a certificate that must be prepared with the utmost degree of care in conformity with international standards, and the conclusions arrived at must be supported by adequate and reliable audit evidence. We, however, noted the following deficiencies:
● There was no mention of the Minister of Finance being responsible for the preparation and fair presentation of the consolidated financial statements, as required by the International Standards on Auditing (ISAs);
● The opinion referred to the International Financial Reporting Standards as the accounting and financial reporting framework for the preparation of the financial statements, whereas the statements were prepared using the cash basis of accounting inherited since Colonial times with little or no modifications over the years. (Many countries and international organizations have replaced the cash basis of accounting with International Public Sector Accounting Standards, the latest being Nigeria. In Guyana, the Minister of Finance is required to promulgate accounting standards but to date this has not been done);
● The Auditor General stated that he conducted his audit in accordance with the ISAs, among others, which require compliance with ethical requirements. He is, however, yet to address, in a tangible and not cosmetic way, the issue of the conflict of interest between the Ministry of Finance and the Audit Office. The bar relating to conflict of interest involving those responsible for the preparation of financial statements and those who are auditing them, is significantly higher than that of other professions. In this case, removal from the setting by either party, and not recusal, is the only option to ensure credibility of the financial reporting and audit processes, as required by the accounting profession’s ethical conduct rules;
● None of the 13 sets of financial statements comprising the consolidated financial statements were given a “clean bill of health”. Nine sets of statements received a qualified opinion, while the Auditor General disclaimed his opinion on the remaining sets of financial statements. In most cases, however, the findings were insufficient to support the opinion arrived at, raising the important question as to whether the draft opinion was discussed with the Minister of Finance, as required by ISA 260 – Communication with Those Charged with Governance; and
● The format of the overall opinion did not conform to the ISAs.
Today, we continue our review of the Auditor General’s report. Before doing so, however, I refer to a section in the report entitled “Auditor General’s Overview of the Office” in which it was stated that there are three qualified accountants in the Office. These
persons have completed the ACCA examinations, and after gaining a number years’ of appropriate experience will be eligible for membership of the ACCA. There is a difference between being described as a professional accountant and that of passing the accounting examination, in the same way as passing the Bar examination does not make one a lawyer. I congratulate the officers for passing their examinations and hope that they will eventually become members of not only the ACCA but also the Institute of Chartered Accountants of Guyana. I also urge those who have graduated from the University of Guyana with the Bachelor’s degree in accounting to continue their studies leading to the ACCA. Considering that the degree is only an entry requirement for acceptance to the ACCA programme, they have a long way yet to go before becoming professionally qualified accountants.
Analysis of the audit opinion
I should have mentioned last week that when a qualified audit opinion is issued, as in the case of a disclaimer of opinion, a separate paragraph should be inserted under the heading, “Basis for Qualified Opinion”, setting out clearly the reason(s) for the qualification and the effect on the financial statements. The Auditor General, however, did not include such a paragraph in his overall opinion on the financial statements, and one has to search the entire body of his report to ascertain what those reasons were. In addition, the wording in the actual opinion paragraph should have read, “In my opinion, except for the effects of the matter(s) described in the Basis of Opinion paragraph…”, instead of “Except for any adjustments which might have been shown to be necessary as a result of the observations…” The latter wording is a very outdated version which has been superseded by ISA 705 with an effective date of on or after 15 December 2009.
Receipts and payments of the Consolidated Fund: The findings were: (a) eighteen bank accounts were listed as inactive; (b) eleven accounts with balances totaling $4.140 billion appeared to be funds that belong to the Consolidated Fund, eight of which reflected static balances; (c) The old Consolidated Fund bank account, which ceased to be operational in 2004, was overdrawn by $46.776 billion; and (d) not all ministries and departments reported to the Ministry of Finance gifts received so that they could be valued and brought to account. As a result of these findings as well as those found in the relevant sections of his report, the Auditor General qualified his opinion on this set of financial statements. Careful examination of the findings, however, would suggest that, except for (d) which may very well not be material, they do not have any impact on the financial statement in terms of misstatement or possible misstatement, and therefore it is doubtful whether the ISAs would allow for a qualified opinion to be given.
Expenditure compared with the Estimates: The only finding was that 12 ministries and departments failed to achieve their anticipated levels of expenditure by about 20 per cent. Although this does not have an impact on the statement in terms of misstatement, a qualified opinion was given. A similar observation is made in respect of the Expenditure Directly Charged upon the Consolidated Fund where there were no findings.
Receipts and Payments of the Contingencies Fund: The findings were: (a) seven payments totalling $95.661 million did not meet the criteria for the grant of advances from the Fund; and (b) advances totalling $615.660 million remained uncleared because the National Assembly did not approve of the related supplementary estimates. The financial statements were again qualified although neither of the two findings resulted in a misstatement. There were also some basic errors in the narrative, such as “as at 31 December 2012” instead of “for the year ended 31 December 2012”. One hopes that this was an oversight since one of the first things that is taught to students of business is to distinguish between the two, as a fundamental aspect to understanding accounting. The report also refers to “unclear Advances” instead of “uncleared advances”. Without any accounting knowledge, one would again appreciate the difference between the two.
It is important to note the Auditor General’s statement that “there has been closer monitoring of advances issued out of the Contingencies Fund”, resulting in only seven advances referred to above not meeting the criteria. Regrettably, he did not mention what those monitoring mechanisms were. Unlike previous years, the same language was also used in the Auditor General’s report for 2011. This is an extraordinary statement, considering that the Contingencies Fund continues to be abused to meet routine expenditure. In 2012, the Minister of Finance had authorized 39 advances totalling $4.714 billion, most of which did not satisfy the criteria for the grant of such advances, contrary to the findings of the Auditor General. One only needs to examine Financial Paper 2/2013 now before the National Assembly to confirm this.
Next week, we will continue our discussion of the 2012 Auditor General’s report by examining the results of the audit on the other financial statements comprising the public accounts. Meanwhile, I leave you with the following words of the Comptroller General of the United States in his 1976 annual report:
The legislative history of the 1921 Act consistently stressed that the Comptroller General should exercise objective and independent judgment, unfettered by political influence from congressional as well as executive branch sources. This remains as important today as it was perceived to be in 1921, if not more so. Historically, it has only been through scrupulous adherence to this non-partisan objectivity that Comptrollers-General have been able to inspire confidence in their actions and thereby serve Congress effectively.
To be continued –
