By John N Seeram
I was prompted to pen this brief article following information released by the Ministry of Finance on a $2 billion subsidy for GuySuCo published in Kaieteur News of 28 October 2016.
The article had stated that “for the first half of the year, GuySuCo had recorded an operating surplus of $2.9 billion, down from an operating surplus of $3.0 billion for the same period last year. The surplus, it said, was inflated by a $9 billion transfer from the central government to finance operations.
In the absence of this transfer, the Ministry of Finance noted, GuuSuCo’s true position would have been a deficit of $6 billion.
If this information is valid then GuySuCo needs to understand that it should be complying with international financial reporting standards in the preparation of its financial statements. Income or loss from operations is determined from the use of its assets to manufacture sugar which is then marketed to earn income. Under no accounting standard can a subsidy be included as operating income.
Hence its Comprehensive Income Statement (CIS) should be showing its true income or loss from its operations; then it should record the subsidy as financing its operations in order to determine its net income or loss. Hence the CIS will show a two-part statement, ie income or loss from operations, then its net income or loss after accounting for extraordinary transaction(s) such as a subsidy.
It is imperative that financial statements be prepared in compliance with IFRS since they are used to determine an organization’s performance. One way of measuring performance is by using Key Performance Indicators (KPI). KPIs enable an organization to define and measure its progress towards its goals. They are quantifiable measurements related to goals and objectives; for them to be of any value, they have to be accurately measured.
Back to GuySuCo, if its Income Statement is flawed, then KPIs such as Net Operating Income Margin, Net Operating Expense Ratio, Payroll Expense Ratio would be incorrect and be misleading to the users of its financial statements.
As an example, if sales are $1 million and there is a subsidy of $1 million, and expenses are $1.2 million, then the net operating loss is $200,000, which is the correct position. If the subsidy is included as operating income which is erroneous, the net operating income is $800,000 ($2 million – $1.2 million). Hence the Net Operating Loss Margin for the true position is negative (–) 20%. For the erroneous net operating income of $800,000, the Net Operating Income Margin is positive (+) 40%. Hence this KPI as well as other KPIs will be misleading.
Many leading large companies in the private sector have been publishing their audited and interim unaudited financial statements in the media. I have not been seeing any financial statements from GuySuCo published in the media. Taxpayers in Guyana need to know about GuySuCo’s performance. The tendency is for a senior official of public corporations to mention in an interview or an announcement about the operations of their entities. However, in the absence of published audited financial statements there is no credibility on those pronouncements. This applies not only to GuySuCo but also to other state-run corporations such as Guyana Water Inc, Guyana Power and Light, Marriott Hotel and NICIL, to mention a few.
It is not for me to say who should be on boards and I am not in possession of the names of members on the boards of public corporations. If we are to follow the global trend, the financial success of such entities is, among others, having competent, skilled and experienced finance/accounting-oriented personnel, among others, on their boards. In the Guyana situation, our public corporations’ boards appear to need such personnel, if they are lacking, in order to analyse at the professional level their financial statements and advise accordingly on their performances.
Before I close, I need to mention another phase of GuySuCo’s operations. From what I have been reading in the media, GuySuCo is apparently bankrupt but we need to keep this entity in operation due to the thousands of workers on their payroll. Is there a turnaround strategic plan over a ten-year period with the expectation that down the road, it will become a profitable entity again? If there is one, then it should be published, and its KPIs and other financial and non-financial benchmarks to be attained annually, among others, should be highlighted.
On the other hand, if there isn’t one, then urgent action should be taken to prepare, approve and implement a strategic plan. The government cannot continue, year after year with the granting of subsidies in the absence of a plan.
Decisions on GuySuCo’s current and future operations are not easy to make.
John Seeram is a Financial/Audit Consultant
