Public financial management: 1966 to present (Part IV)

This is the fourth in a series of articles on public financial management in Guyana’s post-Independence period. The three previous articles covered developments from 1966 to 2001. It was in 2001 that some important constitutional amendments were made, especially in the area of public finance, including provisions for the establishment of the Public Procurement Commission and the strengthening of the independence of the Audit Office.

Today, we discuss three important pieces of legislation that were passed during the period 2003-2004, namely the Fiscal Management and Accountability (FMA) Act 2003; the Procurement Act 2003; and the Audit Act 2004.

The FMA Act

This Act replaces the Administration section of the Financial Administration and Audit Act. The key features are:

• Establishment of a timeframe for the commencement of the preparation of the Government’s budget;
• Approval of budget submissions, accompanied by Programme Performance Statements, by the concerned Minister of each budget agency. These statements are to be presented to the Assembly together with the National Budget;
• Variation of appropriations permitted across programmes within a budget agency. The maximum variation is 10% of the appropriation of the relevant programme;
• Transfer of appropriations for current expenditures to capital expenditure is permitted but not the reverse;
• Not more than five supplementary appropriations are to be allowed except in cases of grave national emergency;
• The Minister is to report at the next sitting of the Assembly on all advances made from the Contingencies Fund since the previous report;
• All overdrafts are to be repaid before the end of the fiscal year in which they were incurred;
• The Minister is to promulgate appropriate accounting standards for the maintenance of accounts and records;
• The Minister is to make regulations to, among others, provide for electronic authorizations and certifications as well as digital signatures;
• Heads of budget agencies are to maintain effective internal audit systems;
• The Minister is to present to the Assembly within 60 days of the end of the first half year, a mid-year report on the annual budget and prospects for the remainder of the year;
• The preparation of the consolidated financial statements of the Government is now the responsibility of the Minister of Finance;
• The consolidated statements are to include an End of Year Budget Outcome and Reconciliation Report, and a statement of contingent liabilities; and
• The Minister is to present to the Assembly budgetary proposals of all statutory bodies not later than the time of submission of the national budget. In addition, the concerned Minister is required to present to the Assembly within two months of its receipt, the annual report of a statutory body.

As regards the incurrence of overdraft, the two Consolidated Fund bank accounts were overdrawn by amounts totalling $76.718 billion as at 31 December 2014. In addition, accounting standards for the accounting and recording of transactions are yet to be promulgated, and the Government continued to use the cash basis of accounting. In recognition of the significant shortcomings in this system of accounting, particularly in relation to asset management and inventory, several countries as well as international organizations have migrated to International Public Sector Accounting Standards (IPSAS) or are in the process of doing so.

Since the passing of the Act, except for the Ministry of Finance, little or no attempt has been made to establish an organized system of internal audit at Ministries and Departments. Larger ministries appeared content to continue the old practice of having field auditors whose responsibilities are mainly in relation to conducting inventory counts and reporting discrepancies The Ministry of Finance has introduced a centralized internal audit system with a staffing of about 16.  However, this is inadequate to provide internal audit coverage of all Government departments and therefore there is a need for larger Ministries and Departments to have their own dedicated internal audit units.

As regards the presentation to the Assembly of a mid-year report on the annual budget and prospects for the remainder of the year, the first such report to be presented was in respect of the first half of 2007.  Although it was due at the end of August 2007, the report was not presented until November 2007. There were also delays in meeting the deadline for some of the subsequent years.

The consolidated statements to be prepared by the Minister at the end of each year are to include an End of Year Budget Outcome and Reconciliation Report. The Act defines this report as one which reconciles the planned execution of the annual budget with the out-turn of that budget, and includes a detailed explanation of any significant variances and their related impact. The level of statistical detail contained in the report should also be consistent with that contained in the appropriation act to which it relates.  However, the level of detail contained in the report was not consistent with the requirements of the Act.

Procurement Act 2003

The Procurement Act provides for the regulation of the procurement of goods and services, and the execution of works in order to promote competition among suppliers and contractors, as well as fairness and transparency in the procurement process. It replaced the Tender Board Regulations which had become outdated and did not have the effect of law. It was therefore a step in the right direction to have a comprehensive and modern set of rules in place for procurement, codified in the form of legislation.

Key elements in the new legislation include:

• Prequalification of suppliers and contractors to ensure that the requisite criteria in terms of, inter alia, technical competence and financial standing are met;
• Recording of procurement proceedings leading to the award of contracts;
• Publication of contract awards;
• Prohibition of the splitting of contracts to avoid review by higher authority levels;
• Creation and membership of the NPTAB;
• Creation and membership of Regional, Departmental, and District tender boards;
• Public corporations and other bodies in which controlling interest vests with the State may have their own procurements rules. However, where this is an inconsistency, the requirements of this Act prevail;
• Methods of procurement, whether by open tendering, restricted tendering, requests for quotations, single-source procurement, and procurement through community participation; and
• Procedures for dealing with complaints in relation to the award of a contract.

The Act acknowledges the non-establishment of the Public Procurement Commission. It accordingly vests the key responsibilities of the Commission with the NPTAB until such time that the Commission is established.  In addition, the Cabinet has been given the right to review all procurements exceeding $15 million with the proviso that, upon the establishment of the Commission, this threshold would be revised upward so that over a period of time the Cabinet’s involvement would be phased out. The Commission is yet to become a reality 15 years after the constitutional amendment.

Audit Act

At a meeting of the Constitutional Review Committee established in 1999 following post-election violence, the Audit Office seized the opportunity to make out a case to the Committee for an amendment to the Constitution for a strengthened Audit Office, free of political interference and with adequate resources to discharge its responsibility to the Legislature. The results are reflected in the constitutional amendment of 2001 which have been discussed already.

The key requirements of the Act are:

• The Auditor General has been given the legal mandate to undertake performance or value-for-money audits;
• The Government may cause an additional audit to be conducted by an auditor other than the Auditor General, where an agreement entered into between the Government and an international financial institution so dictates;
• The Minister of Finance may request the PAC to cause an additional audit to be conducted by an auditor other than the Auditor General;
• The Auditor General is to make regulations for the administration of the Act, duly approved by the PAC. The regulations are to include a Rules, Policies and Procedures Manual as well as the standards to be used in the conduct of audits;
• The Auditor General is vested with the responsibility for the human resources management of the Audit Office, including the development of job specifications and descriptions. However, appointment and discipline of senior officers are subject to ratification by the PAC;
• The Auditor General is to include responses to draft audit reports in his report to the Legislature;
• The Act repeats the constitutional provision dealing with financial autonomy of the Audit Office. The budget is to be supported by work plans and programmes, duly approved by the PAC; and
• Within four months of the close of the fiscal year, the Auditor General is to submit to the PAC an Annual Performance and Financial Audit Report duly audited by an independent auditor.

Included in the draft Audit Act were: (a) the qualification requirements for appointment as Auditor General; and (b) the requirement for the Auditor General to be deemed a principal for the purpose of eligible officers to obtain practice certificates from the Institute of Chartered Accountants of Guyana.  Unfortunately, these did not find favour with the Government and were left out of the final legislation.  Had these two aspects been included in the legislation, the Audit Office of today would have been significantly different in terms of technical and professional competence as well as efficiency of operations.