The United States Government faces two conflicting situations. On the one hand, it is under severe pressure to expand crude oil production to address the issue of higher gasoline prices that is contributing to record inflation. On the other, there are calls to curb emissions from the burning of fossil fuels that is the main contributor to global warming and climate change. Last Friday, the Biden Administration announced that it will be granting new leases of federal lands for the extraction of oil and gas at a royalty rate of 18.75 percent, an increase of 50 percent. (See https://ca.yahoo.com/news/biden-increases-crude-oil-royalty-212645995.html.)
In 2016, the Guyana Government entered into an agreement with ExxonMobil’s subsidiaries for the extraction of fossil fuels at a royalty rate of a mere two percent. This is in addition to a profit-sharing of 50 percent after the deduction of all recoverable costs. However, in the absence of ring-fencing provisions, recoverable costs can be inflated, thereby reducing profitability and hence Guyana’s share of the profit. While there is provision in the agreement for the Government to engage the services of independent auditors to verify the recovery costs within a specified timeframe, the Authorities have so far been unable to get their act together to arrange for such verification to take place, or for whatever reason are reluctant to do so. Generous fiscal concessions and exemptions from various forms of taxation have also been granted. All of this should be viewed against the background that Guyana’s natural resources belong to its citizens, present and future, and should be exploited in a manner that provides maximum benefit to them. The reverse, however, is the case as the agreement is overwhelmingly weighted in favour of the U.S. oil giant. So far, calls for a renegotiation of the agreement to ensure that Guyana gets a higher share of its oil wealth have been met with rebuff from both the previous and present Administrations, despite promises made by the latter in its 2020 election manifesto.
Last week, the National Assembly approved an amendment to the Standing Orders to provide for an increase in the number of members of the Public Accounts Committee (PAC) that should constitute a quorum. The Opposition was vehemently against the amendment, claiming that it is likely to stymie the Committee’s efforts to bring its backlogged examination of the public accounts up-to-date. The last report of the PAC was in respect of the years 2012-2014 and was issued some five years ago in July 2017. The Committee is currently examining the accounts for the combined years of 2015-2018 together. Needless to mention, the effectiveness of the PAC’s work depends on its ability to bring its work up-to-date to enable the Government to respond on the actions it has taken or proposes to take to remedy the deficiencies identified.
Prior to the amendment, three members of the PAC, including the chairperson, constituted a quorum, irrespective of which political parties they belong. The amendment now provides for a quorum of five members – two from the Government’s side, two from the Opposition and the chairperson. The Government’s rationale for the change is that a larger quorum with representation from both sides of the House will enable the PAC to function more impartially and that it was supported by the Commonwealth Association of Public Accounts Committee (CAPAC). According to the CAPAC’s Handbook, the PAC needs to be of the right size and composition if it is to operate effectively, while at the same time maintaining its autonomy; and it should be large enough to still function in the event some members are unable to be present but not so large as to make the Committee unwieldy. Regrettably, the matter was not discussed at the level of the PAC before it was taken to the full House for approval.
The Handbook also considers that in the Westminster System, except for some small jurisdictions, it is uncommon for a sitting Minister to be a PAC member since this may pose a conflict of interest. Accordingly, it recommends that the practice of having Ministers on the Committee be discouraged. (See https://www.uk-cpa.org/media/3686/capac-handbook-240820.pdf.) The Guyana PAC currently comprises nine members, two of whom are sitting Ministers. In the light of this recommendation, will the two Ministers consider stepping aside to allow for two other Members of Parliament from the Government’s side to sit on the Committee? Perhaps, this course of action will help to ease the tensions that currently exist during the deliberations of the Committee.
In last week’s article, we discussed the auditing of the public accounts of Guyana. However, because of space constraints, we were unable to complete the discussion. So far, we have dealt with the constitutional and legislative requirements that provide the Auditor General with the mandate to audit those accounts and reporting the results to the Assembly within a specified timeframe.
In relation to the audit of central government activities, we stated that the Auditor General needs to consider taking a fresh approach, considering the Audit Office’s changing mandate over the years that requires more emphasis on performance or value-for-money auditing to complement the financial and compliance auditing currently being carried out. We say this because of our own experience whereby in several instances the results of the latter reflected a “clean bill of health”, whereas there was little to show for the expenditures incurred. We then began a discussion of the audit of public enterprises and we noted that two important entities – Atlantic Hotel Inc. (the owner of the Marriott Hotel) and the National Industrial and Commercial Investments Ltd (NICIL) were significantly in arrears in having their accounts audited.
In today’s article, we complete our discussion on the auditing of the public accounts.
Auditing public enterprises (cont’d)
There are 39 entities that comprise public enterprises. They are required to have their audited accounts presented to their subject Ministers for laying in the Assembly within nine months of the close of the fiscal year. In 2020, audit reports were issued for only 14 entities; and only three were up-to-date in having their accounts audited. Most of the entities were audited by Chartered Accountants in public practice and several of them received qualified opinions. As in the case of the central government entities, the Auditor General did not identify the entities that failed to have their accounts audited in a timely manner. Nor was there any mention as to how many draft accounts were still with his office and what was the status of these audits.
NICIL was incorporated July in 1990 to assist the then Administration in its privatization programme through monitoring the Government’s investments in public corporations and other entities, disposing of identified State assets/properties, and ensuring all returns on such investments, special transfers from public corporations and the proceeds from the disposal of such assets are collected and paid over to the Consolidated Fund. However, this practice was discontinued with effect from 2002 following the merger of NICIL with the Privatisation Unit of the Ministry. The funds garnered from the above sources were retained by NICIL in violation of Article 217 of the Constitution and were used to fund various projects without parliamentary approval. These include hinterland roadworks – $3.757 billion; construction of the Marriott Hotel – $1.653 billion; rehabilitation of the now abandoned 44 High Street property – $679.434 million; funding of Cricket World Cup – $650 million; construction of the Berbice River Bridge – $170.5 million; hosting of CARIFESTA X – $300 million; and construction of Hope/Dochfour Canal – $110.369 million.
NICIL in effect became a “parallel” treasury. One possible explanation for the incurrence of extra-budgetary expenditure was that in order to meet the conditionalities set under the Enhanced Highly Indebted Poor Countries (HIPC) Initiative for debt relief, the public sector deficit had to be kept to a certain minimum. If this is true, Guyana would have been in receipt of some amount of debt relief for which it might not have been eligible.
Considering that the Government’s privatization programme had come to an end, the forensic audit carried out in 2015 had recommended that NICIL be wound up and the residual activities transferred to a small unit under the Ministry of Finance. Instead of doing so, NICIL’s operations expanded to include the take-over of the assets of the closed sugar estates in accordance with Vesting Order 45 of 2017 dated 29 December 2017 signed by the then Minister of Finance. NICIL had also issued bonds in the sum of $30 billion to assist in the restructuring of the sugar industry. Of this amount, $16.5 billion were drawn and is now reflected as part of the public debt. Unfortunately, NICIL has had a checkered history in terms of financial reporting and audit since the merger in 2002, and is currently eight years in arrears. (See https://finance.gov.gy/wp-content/uploads/2017/05/nicil_audit_report.pdf.)
Audit of statutory bodies
A total of 59 entities comprise statutory bodies which are entities created under special acts of Parliament. These entities are also required to have their audited accounts presented to their subject Ministers and laid in the Assembly within nine months of the close of the fiscal year. In 2020, the Auditor General issued his report for 14 entities covering various periods ranging from 2015 to 2020; and only three entities were up-to-date in having their accounts audited. The majority of the audits were undertaken directly by the Auditor General.
Auditing municipalities
Of the ten municipalities, only Anna Regina Town Council was audited in 2020 covering seven years of accounts from 2011 to 2017. According to the Auditor General, the remaining nine entities had a total of 128 years of accounts still to be audited, which works out to on average 14 years in arrears. In particular, the largest municipality – Georgetown City Council – was last audited up to 2000 and the related report issued in 2002.
Auditing Neighbourhood Democratic Councils
A review of the Auditor General’s report over the years indicates that the status of financial reporting and the audit of the 70 NDCs has been far from satisfactory. For example, no reports were issued in 2020; while for 2019 only four NDCs were audited and reported on for periods varying from 2010 to 2018. For 2018, audit reports for five NDCs were issued again for varying periods; while for 2017, audit reports for 17 NDCs were issued. In most cases, the Auditor General issued qualified opinions on the accounts.
Auditing of foreign-funded projects
Foreign-funded projects that require separate financial reporting and audit include those funded by the Inter-American Development Bank, International Development Agency, Caribbean Development Bank and the United Nations Development Programme. The financial reporting and audit of these projects are up-to-date mainly because one of the conditionalities is for audited accounts to be produced within a specified timeframe. There is also rigorous monitoring by the funding agencies to ensure compliance.
Conclusion
The current practice among state audit institutions is a distinct shift towards performance or value-for-money auditing as this approach provides greater assurance as to whether the expenditures on government programmes and activities have been incurred with due regard to economy, efficiency and effectiveness and whether the outputs, outcomes and impacts are commensurate with those intended. The Auditor General has been given the legal mandate to undertake such audits since 2004 and should intensify efforts to do so. The Authorities also need to establish dedicated internal audit units at least at the larger Ministries, Departments and Regions as this is likely to free up some of the resources of the Audit Office to carry out more intensive reviews of government programmes and activities.
Financial reporting and audit of non-central entities have been badly neglected over the years. In this regard, heads of budget agencies, subject Ministers and the PAC have a role to play in ensuring that these entities are fully accountable and in a timely manner for the use of public resources. For his part, the Auditor General should consider utilizing more of the services of Chartered Accountants in public practice with the aim of bringing financial reporting and audit of non-central government entities to some measure of respectability. It should not be over-emphasised that public accountability cannot be considered as having been fully discharged unless all entities comprising the public accounts are up-to-date in terms of financial reporting and audit.
