A former Minister accused me of being unprofessional in discussing in one of my columns the report on the forensic audit of the National Industrial and Commercial Investments Ltd (NICIL). I had written several columns before on NICIL and therefore it was an opportune moment to update my previous writings on the entity. That apart, two legal opinions, one of which sought to challenge the findings contained in the report, were recently released to this newspaper. As the author of the report, I felt it obliged to comment on these opinions.
Cabinet’s decision on the transactions audit of NICIL
Concerns were expressed about Cabinet’s decision for the Auditor General to conduct Phase II of the forensic audit of NICIL. This “transactions” audit phase involves a more detailed examination of the underlying records/transactions because the scope of the original audit was extensive, covering a period of 14-year. It was therefore not possible for such detailed examination to be carried out within the timeframe set for the audit. Cabinet also instructed that both the Chief Executive Officer and his Deputy proceed on administrative leave to facilitate this second phase.
A review of NICIL’s website indicated prior to 27 September 2012, the company was eleven years in arrears in having audited accounts, a serious violation of the Companies Act. Concerned about the state of accountability at NICIL, a Government company, the National Assembly passed Resolution No. 14 of 27 June 2012 calling on the relevant Ministers to, among others:
Provide the Assembly with a report on the disposal by sale or otherwise of all State lands during the period 2000-2011, including the terms on which they were disposed of, and the criteria used;
Make financial provision for the urgent commissioning of an independent financial audit of NICIL and the Privatisation Unit;
Provide a detailed report on the disposal by sale or otherwise of all State assets entrusted in NICIL and the Privatisation Unit, the terms on which they were disposed of and the criteria used; and
Provide the outstanding bi-annual reports and annual audited accounts required of NICIL and the Privatisation Unit under the relevant legislation.
Exactly three months later, the Auditor General issued his reports on NICIL’s accounts for four consecutive years i.e. 2002, 2003, 2004 and 2005. Each report was given a “clean bill of health” despite the fact that with effect from 2002, NICIL had changed its accounting policy to one which recognizes its revenues, dividends received from public corporations and other entities as well as the proceeds from the sale of State properties. This is in clear violation of Article 216 which require all such proceeds to be paid over to the Consolidated Fund. Subsequent years were done in similar unprecedented record time and were also given a “clean bill of health”, notwithstanding that the accounts were converted into a new and far more detailed and elaborate format, consistent with the International Financial Reporting Standards. The audit would have required significantly more time and effort in order to pronounce on the revised accounts.
The then Minister of Finance was the Chairman of NICIL’s board at a time when his spouse had overall responsibility for the audit of NICIL. In addition, in 2007, the Minister was reported to have advised that the audits of public corporations under NICIL’s control should be outsourced but NICIL’s audit must remain with the Auditor General.
It is against this background that the concerns about the Auditor General’s involvement in Phase II of the forensic audit must be viewed. The Minister of Finance has asserted that the Auditor General is constitutionally mandated to carry out the audit, notwithstanding that he (the Minister) had previously commissioned some 40 forensic audits without the involvement of the Auditor General. The Auditor General is the external auditor of the public sector and his core responsibility is to audit the public accounts annually and report the results to the Legislature. However, the Minister is not precluded from appointing an auditor to examine the accounts of a public corporation or Government company and report the results to him, as provided for under Section 48 (1) of the Public Corporations Act. It is precisely for reasons of possible lack of technical competence and/or capacity that this provision has been made. This is no denying that on both counts the Audit Office does not measure up, and on several occasions, its independence and professionalism had been seriously called to question.
In addition, by Section 4 (3) of the Audit Act, the Minister may request the Public Accounts Committee “to cause an additional audit to be conducted by an auditor other than the Auditor General”. This sub-section was inserted in the draft legislation in the wake of the report on the “Dolphin Scam” which the previous Administration vigorously sought to discredit. We shall delay a discussion of this to another convenient time.
Mr. Carl Greenidge, former Minister of Finance, recently stated that the three agencies that should be in the forefront in the fight against corruption – the Guyana Police Force, the Director of Public Prosecutions and the Audit Office – have failed to do so by virtue of weaknesses in their operations. He observed what appears to be some degree of ambivalence among some politicians to take a serious view of the issue because of past association with persons who are being fingered for corruption and mismanagement of state institutions. “Any effort to root out corruption may be at risk of being undermined by those who may not want to prosecute old friends on the other side of the politics who may have done them favours or with whom they may have social/blood links”, Mr. Greenidge asserted.
Violation of Article 216 of the Constitution (continued)
Two weeks ago, we commented on the legal opinion on the applicability of Article 216 of the Constitution to NICIL. We made it clear that dividends from public corporations and other entities as well as proceeds from the disposal of State property are “revenues or other moneys raised or received by Guyana” in the context of Article 216 and Section 38 of the Fiscal Management and Accountability (FMA) Act, for the following reasons:
“Government receipts” include: (a) dividends and profit-sharing paid to the State by public enterprises, statutory bodies and the Bank of Guyana; (b) proceeds from the sale or lease of any public property; and (c) interest earned on the investment of assets of the State;
“Public moneys” are all moneys belonging to the State received or collected by officials in their official capacity or by any other person authorised to receive or collect such moneys and includes: (a) tax and non-tax revenue collections; and (b) moneys received or collected for and on behalf of the State;
“Public property” includes all property, other than moneys belonging to or under the control of the State; and in the custody of or under the control of any person acting for or on behalf of the State in respect of that property; and
The Estimates of Revenue and Expenditure have always included two standard lines items: (a) dividends from non-financial institutions and equity holdings and Bank of Guyana profits; and (b) sale of assets.
Revenue recognition concept
The opinion went on to state that “even deemed to be a public corporation… NICIL is under no duty to deposit revenue into the Consolidated Fund. If NICIL is a private corporation, not only is it under no duty to deposit monies into the consolidated fund…”. NICIL, however, is not a public corporation but a Government company in the context of Section 344 of the Companies Act. Only Section 5 of the Public Corporations Act dealing with the vesting of assets in a new corporation was made applicable to NICIL.
Dividends from public corporations and other entities as well as proceeds from the disposal of State property are not the revenues of NICIL but those of the State. NICIL, like the Guyana Revenue Authority (GRA), a statutory body, is an agent of the State, and in the same way that the GRA pays over to the Treasury the daily receipts of all taxed revenues, so should it be with NICIL. The assets vested in NICIL do not belong to it since NICIL did not purchase them. Nor could they have been gifted to NICIL since by Section 77 of the FMA Act, “[A] Minister or an official shall not make a gift of public property unless the making of the gift is expressly authorised by law”. If the assets vested in NICIL indeed belong to NICIL, why is it then necessary: (a) for Cabinet to approve of the disposal by way of sale or otherwise of these assets; and (b) for the Minister to sign the related orders to transfer the assets to the concerned third parties?
The “matching principle” recognizes revenue when there are costs associated with the earning of such revenue. NICIL did not purchase the public corporations and other entities vested in it. It follows that when dividends are received from these entities, NICIL cannot claim ownership of them. The same applies to the proceeds from the sale of State assets.
Applicability of the procurement Act to NICIL
Section 24 of the Procurement Act provides for State-owned/controlled entities to conduct procurement according to their own rules/regulations approved by the National Procurement and Tender Administration Board (NPTAB). To the extent that such rules/regulations conflict with the Act, the latter take precedence. If funds are received from the Treasury for a specific procurement, then the Procurement Act has to be followed.
Given that dividends received from public corporations and other entities as well as the proceeds from the disposal of State assets, are State revenues and by implications funds of the Treasury, NICIL should have followed the Procurement Act in relation to its procurement activities. In any event, NICIL’s procurement guidelines did not have the endorsement of the NPTAB. The opinion went on to state that “Section 24(1) appears to bring NICIL within the ambit of the Act since the Government of Guyana has the controlling interest in NICIL. The relationship between Section 3 and Section 24(1) of the Act seemingly conflict, and ultimately … the applicability of the Act to NICIL will depend on the interpretation of these sections by the Courts”. However, is it not a simple matter for NICIL to apply the requirements of the Procurement Act, or having its own procurement rules endorsed by the NPTAB? The failure to do so, apart from a violation of the law, does not send the right signal in terms of transparency.
Legal opinion on the National Assembly resolution
Concerned at the extent of NICIL’s violation of Articles 216 and 217, the Assembly passed Resolution 32 of 17 December 2012 requiring NICIL to pay into the Consolidated Fund all revenues and proceeds from the sale of all State property and shares of companies belonging to the State and vested in the name of NICIL during the period 1992 to 2012, except those necessary administrative costs for maintaining and running operations annually. Article 217 specifically states that no public expenditure shall be incurred without parliamentary approval. NICIL ignored the resolution on both counts by retaining some $26 billion in State revenues and using them to incur expenditure at the discretion of its directors. This is in addition to $6.3 billion reportedly transferred to NICIL from other State agencies.
This second legal opinion asserted that, barring the passage of a law, the National Assembly had no legal basis to direct NICIL and that the motion approved by the opposition-controlled House in 2012 was not legally enforceable. This implies that only a motion from a Government-controlled House must be honoured. However, is it not against the grain of democratic norms and values for NICIL to ignore the resolution, considering that so many countries are governed by minority governments? The opinion went on to state for the motion to have legal effect, it has to be converted into a bill approved by the Assembly and given presidential assent. Do we really need another law to compel NICIL to cease violating Articles 216 and 217 of our Constitution? And why did NICIL not inform the Assembly of this opinion that was given since January 2013?
