In last week’s article, we discussed four of the seven infrastructure development projects financed by the Exim Bank of China that ran into serious difficulties during their execution stages – the Skeldon Sugar Modernisation Project; the One Laptop Per Family Project; the Fibre Optic Cable Project; and the Cheddi Jagan International Airport Project. The first three have failed completely to deliver in terms of their objectives, outputs, outcomes and impacts, thereby encumbering the Guyana’s public debt in the tune of US$115.4 million, with little or nothing to show for the expenditure incurred. This is in addition to the significant amounts expended as counterpart funding on these projects. In the case of the airport project, the works are still on-going after ten years, with a revised completion date of 20 June 2022. The original construction cost was estimated at US$150 million. This has now been revised to around US$200 million.
The Specialty Hospital Project was another failed project, this time financed by the Exim Bank of India. Apart from the controversy over the award of the contract to Surendra Engineering, the contractor was paid a mobilization advance of US$4.3 million. However, because of unsatisfactory performance, the contract was terminated. Attempts to recover the amount advanced from the performance bond that was lodged as a guarantee for unsatisfactory performance, were unsuccessful because of a dispute over the bond’s authenticity. This amount is reflected in the public debt of the country.
In today’s article, we discuss the financial reporting and auditing of public accounts and assess the extent to which there has been compliance with the constitutional/legislative provisions governing the work of the Audit Office.
Constitutional/legislative provisions
By Article 224 of the Constitution, the Auditor General is required to audit the public accounts of Guyana and the accounts of all officers and authorities of the Government (including Commissions established by the Constitution), the Clerk of the National Assembly and all courts in Guyana. Prior to 2001, there were significant disagreements over the extent of the Auditor General’s mandate and what really constituted the public accounts. The constitution amendments of 2001 have finally settled the matter by defining the public accounts to include: (i) all central and local government bodies; (ii) all bodies in which the State has a controlling interest; and (iii) all projects financed by way of loans or grants by any foreign State or organization.
Having completed his audit of the public accounts, the Auditor General prepares his report and submits it within nine months of the close of the fiscal year to the Speaker of the National Assembly. To assist him in discharging his responsibilities, both the Financial Administration and Audit (Amendment) Act 1993 and the Act 2004 provide for the engagement of Chartered Accountants in public practice to audit on the Auditor General’s behalf any of the accounts referred to above. In addition to conducting financial and compliance audits, the Audit Act empowers the Auditor General to undertake performance audits or value-for-money studies to ascertain the extent to which a public entity is ‘applying its resources and carrying out its activities economically, efficiently, and effectively and with due regard to ensuring effective internal management control’. The Act also delinks the Audit Office from the rest of the Public Service by providing it with greater autonomy and flexibility, with reporting relationship to the Legislature via the Public Accounts Committee (PAC).
Auditing of central government
Since Guyana attained its Independence in 1966, there had been a progressive decline in public financial management so much so that by 1981 accountability was brought to a standstill. Financial reporting and auditing of the public accounts were restored with effect from 1992. A detailed account of the events leading to the restoration of public accountability is beyond the scope of this article. However, interested readers are referred to pages 5-8 of the 1992 Auditor General’s report to be found at http://www.audit.org.gy/pubs/AnnualReport1992.pdf. Further details can be found in my book “IMPROVING PUBLIC ACCOUNTABILITY: The Guyana Experience 1985-2007”. There is also a publication edited by Arif Bulkan and Alissa Trotz titled “Unmasking the State: Politics, Society and the Economy in Guyana” in which I contributed a chapter on Guyana’s public financial management systems in the post-Independent period. Both books are available at Amazon.com.
With the restoration of public accountability, annual financial reporting and auditing of the public accounts, and reporting to the Legislature have now become the norm. The PAC was also activated to examine these reports and to report back to the Assembly, followed by the issue of a Treasury Memorandum setting out what actions the Government has taken or proposes to take in relation to the PAC’s findings and recommendations. However, the ten-year gap in financial reporting and audit of the public accounts would remain a significant blemish in the history of public accountability in Guyana.
Since 1992, the Auditor General’s report has been detailing the results of the audit of central government activities only, with very little information provided as regards the other areas referred to above, except for a small section at the end of the report that provides a list of audits completed during the period under review and the types of audit opinion issued. There is no mention of the status of the audit of the entities that have not been listed, many of which are significantly in arrears in financial reporting. Nor is there mention of the entities that have submitted draft accounts for audit and the status of such audits. It would be of interest if the Auditor General were to publish the list of all entities for which he has audit responsibility, indicating their status in terms of financial reporting and audit.
The Auditor General is the external auditor of the entire public sector, and it cannot be said that public accountability has been fully discharged unless all the entities comprising the public accounts are up-to-date in having their accounts audited and the related reports presented to the Assembly, where required by the law. On several occasions we have stated that non-central government entities are perhaps in greater need of scrutiny by the Auditor General because of the accountability framework is not as comprehensive as that of central government. In the case of the latter, the Assembly goes through the rigorous process before approving the budgets of Ministries, Departments and Regions on a programmatic basis and by line items. Additionally, there are also strong constitutional provisions relating to public finance, elaborated on by the Fiscal Management and Accountability (FMA) Act as well as detailed rules and procedures on public expenditure. There is also the Public Procurement Act that budget agencies are required to follow in the award of contracts for the acquisition of goods, services and the execution of works.
The Auditor General’s reporting template that was developed in 1992 is still being used almost in its entirety, except for the inclusion of some photographs and charts. The structure of the report as well as the text, including the language used, remain almost the same, leading some observers to consider that the report is a mere update of the previous year’s report to reflect the status for the year under review. After all, the template was never meant to be cast in stone. It is no wonder that findings continue to remain the same – overpayments to contracts, breaches in the tendering process, unpresented vouchers, and so on. This is not to suggest that these are not important findings. However, a fresh approach based on the use of risk-based auditing techniques is likely to yield more significant findings. An assessment therefore needs to be undertaken to identify what modifications need to be made to the template. Or perhaps, a new template needs to be developed.
For most national audit offices, there has been a distinct shift towards the conduct of performance auditing which looks at issues relating to economy, efficiency, effectiveness, outputs, outcomes and impacts. This is not to suggest that financial and compliance auditing, as is the current practice, should not be carried out. However, the Guyana experience has shown that despite compliance with rules, procedures and constitutional/legislative provisions, several programmes and activities have failed to deliver to expectation. Indeed, since the passing of the Audit Act in 2004, only seven performance audits were completed as of the end of 2020, two of which were follow-up audits; whereas it was expected that at least four such audits would be undertaken annually.
Auditing of public enterprises
According to the Audit Office’s website, there are 27 public enterprises, including Atlantic Hotel Inc. (AHI), the owner of the Marriott Hotel, and National Industrial and Commercial Investments Limited (NICIL), the parent company of AHI. In response to a Stabroek News enquiry last week, the Auditor General stated that the audit of AHI’s accounts for the last five years, i.e. 2016 to 2021, are on-going and that the process was delayed because the relevant documents requested from NICIL were not presented. He also attributed the delay to the forensic audits of the Marriott Hotel and NICIL that were conducted in 2015. It is, however, not the established practice for several years of accounts to be submitted for audit at the same time, for the simple reason that arising out of the audit several adjustments may have to be made before the accounts are certified. When this happens, the opening balances for the following year may have to be adjusted – hence the practice of auditing one year at a time, and of course, sequentially. The submission of several years of draft accounts for audit should therefore cease and the entities involved should carefully monitor the status of the audits to ensure their timely completion. The Auditor General, for his part, should not accept more than one year’s accounts at the same time.
The seriousness of the directors to have AHI’s accounts audited in a timely manner is called into question. Sections 107, 154 and 346 of the Companies Act requires: (i) the audited accounts to be presented to the shareholders at the annual general meeting at least once every calendar year but not later than 15 months after the holding of the last meeting; (ii) annual returns to be submitted to the Registrar of Companies within 42 days of the holding of such meetings; (iii) the audited accounts to be presented to the Minister within six months of the close of the financial year; and (iv) the audited accounts to be laid in the National Assembly within nine of the close of the financial year. There are also penalties for non-compliance with these requirements. This is in addition to the risk of AHI being struck off the Register of Companies for failure to submit annual returns.
Contrary to the assertion by the Auditor General, the two forensic audits could not in any way have affected his audit since they served different objectives. In any event, they were undertaken over a four-month period from June to October 2015, some seven years ago! That apart, the forensic audit of NICIL was a high-level performance audit that uncovered the retention of State revenues and their diversion to finance various projects without parliamentary approval, including the
construction of the Marriott Hotel and the Amaila Falls Hydropower Project. As a result, the report recommended that a detailed transaction audit be carried out of NICIL. A copy of the report is available at https://finance.gov.gy/wp-content/uploads/2017/05/nicil_audit_report.pdf.
The Cabinet, in its wisdom or lack thereof, chose to have the Auditor General conduct the transaction audit although he had already certified NICIL’s accounts which were given a “clean bill of health” despite the numerous problems uncovered during the forensic audit. To date, the status of this special audit remains unknown.
In May 2018, NICIL issued bonds in the sum of G$30 billion to assist in the restructuring of the Guyana Sugar Corporation, of which G$16.5 billion was drawn down. The duration of the bonds is for five years, with the Government guaranteeing repayment, and eventually assuming the debt. Additionally, the assets of the Skeldon Sugar Modernisation Project, along with other assets of the closed sugar estates, have since been transferred to NICIL in keeping with a Vesting Order signed by the then Minister of Finance. However, an examination of the Auditor General’s reports indicated no evidence that NICIL’s accounts were audited beyond 2013. A Google search for NICIL’s website was unsuccessful, suggesting that it is no longer in existence or that it might have been down.
To be continued
