Before proceeding with today’s article, a brief comment is appropriate in relation to recent statements made by Floyd Haynes on a Kaieteur News radio programme on the audit of Exxon’s post-contract costs covering the period 2018-2020. He stated that the amount of expenditure his team is required to audit is approximately US$7.3 billion and not US$9 billion, as reported in the print media, which he considered misleading.
We do not wish to doubt the figure quoted by Mr. Haynes, having now immersed himself into the audit. It is, however, unclear whether the amount to be audited was reflected in the bidding documents, or in the contract that was subsequently entered into. Suffice it to state that, in the absence of publicly available information as to the actual amount involved, the media would have relied on other sources. For example, it was Guyana’s Vice President at a press conference in November 2020 who had indicated a figure of US$20 billion: ‘The post-contract costs are the bulk of it…we are talking upwards of (US$) 20B that have to be reviewed. It is a task we have to come around it. That is looking out for national interest.’ See https://www.stabroeknews.com/2020/11/09/news/guyana/audit-of-exxonmobils-us460m-pre-contract-costs-completed-statia/.
Mr. Haynes indicated that the exercise is not a forensic audit which he described as one that is done ‘with the aim of identifying fraud and embezzlement with the goal of gathering evidence to be used in a court’. We might add that that such an audit is undertaken if there are allegations of fraud or illegal conduct. It seeks to ascertain the truth or otherwise of the allegations. Having established this to be so, the forensic auditor then gathers the necessary evidence to be used in a court of law to prosecute those involved.
No one has suggested that there was ‘fraud and embezzlement’. However, considering that the timeframe for the conduct of the audit had elapsed, concerns were expressed about the statement from the Government that the audit would not be undertaken because it was unable to identify a ‘strong group’ of local auditors to undertake the assignment.
In our article of 22 August 2022, we had stated that the audit of the post-contract recoverable costs is necessary to provide the reasonable assurance that the expenditures incurred are legitimate recoverable costs in the context of the 2016 Petroleum Agreement with Exxon’s subsidiaries; and the amounts involved are reasonable and represent good value for money. This is especially so, considering the higher the recoverable costs, the less will be the amount of Guyana’s share of profit that will accrue to it.
In that article, we had also referred to the statement by the International Monetary Fund that there are too many loopholes, which if not plugged, could result in Guyana losing significant amounts of revenue; and strong leadership in government was needed to ensure that the interest of the State is properly safeguarded. The IMF specifically referred to the absence of ring-fencing of costs as an area of particular concern.
Considering these and other concerns, a comprehensive auditing of the post-contract recoverable costs assumes greater significance. We hope that Mr. Haynes and his team will deliver to expectation.
In today’s article, we continue our discussion of the 2021 Auditor General’s report of the public accounts.
Financial performance
Current revenue was $267.033 billion while current expenditure amounted to $300.466 billion, giving an overall operating deficit of $33.433 billion. On the other hand, capital revenue (derived from the proceeds from external loans and grants) was $28.728 billion while capital expenditure amounted to $104.386 billion. The overall fiscal deficit was therefore $109.091 billion and was financed from the resources of the Consolidated Fund which for the first time reflected a positive balance. This was due to local borrowings in the form of the issuance of Treasury Bills amounting to $153.370 billion less redemption of $83.524 billion as well as debentures in the sum of $200 billion. It is to be noted that while the proceeds from the issuance of Treasury Bills are public moneys, they are not revenues for the purpose of computing the financial performance of the Government. The same goes for the redemption of Treasury Bills which should not be included in operational expenditure.
As a result of the above borrowings, the balance on the Consolidated Fund moved from an overdraft of $163.640 billion to a positive balance of $12.484 billion. Of course, these borrowings have the effect of increasing Guyana’s public debt which, it should be noted, attracts interest charges. This is unlike the overdraft on the Consolidated Fund for which the Bank of Guyana charges no interest by virtue of the various Government deposits held by it and for which it does not pay interest. In 2021, interest charges on both internal and external debt amounted to $7.026 billion.
Of particular note is the elimination of the overdraft of $46.677 billion on the Old Consolidated Fund bank account. This account had not been used since 2003, following the opening of a new Consolidated Fund bank account in 2004. In several of our columns, we had advocated the liquidation of the overdraft on this old account via transfers from the new account. It is therefore a welcome development that action was taken in this regard.
By Section 26 of the Fiscal Management and Accountability (FMA) Act, all appropriations lapse at the end of the fiscal year, and all unspent balances have to be refunded to the Consolidated Fund. The Auditor General reported that a total of 12,242 cheques valued at $18.592 billion were drawn on the Consolidated Fund bank account during the period 31 December 2021 to 8 January 2022, as shown below:
It is, however, unclear what these payments represent as there was no further comment from the Auditor General, which is regrettable considering that he had reported on the other areas of lesser importance, such as the absence of vehicle log books and certain registers not being maintained. Could it be a case where the cheques were drawn at year-end and early into the new year (and in all probability backdated to 31 December 2021) to exhaust budgetary allocations? Is this not a serious violation that would have required in-depth evaluation by the Auditor General?
Budgetary performance
Compared with the approved budget of $266.023 billion, current revenue exceeded estimated collections by $1.010 billion; while at the same time there were shortfalls in certain categories. Apart from the latter, although there were no adverse findings, the Auditor General reproduced verbatim the detailed explanatory notes to the accounts as the Ministry of Finance’s response. It would have been more appropriate if he had referred to these notes and perhaps summarise them as they relate to the shortfall only. This would have avoided unnecessary duplication and indeed lessened the bulkiness and unwieldiness of his report.
The amount budgeted for capital revenue was $41.011 billion, while actual collections amounted to $28.728 billion, resulting in a shortfall of $12.283 billion. The Ministry explained that this was attributable mainly to ‘delays in the award of critical developmental projects, supply chain challenges for critical inputs occasioned by the COVID-19 pandemic, and poor project implementation’.
The approved allocation for current expenditure, inclusive of supplementary estimates, but excluding statutory expenditure, was $279.610 billion; while actual expenditure incurred was $268.884 billion, resulting in an overall saving of $10.726 billion. (Statutory expenditure are a direct charge on the Consolidated Fund and is not voted for by the National Assembly. They include the emoluments of holders of constitutional offices, and the repayment and servicing of the public debt.) Again, the Auditor General reproduced verbatim the explanatory notes to the financial statements as the response of the Ministry although there were no findings in relation to this expenditure. The same could be said of capital expenditure which amounted to $104.386 billion, compared with the estimate of $126.475 billion, resulting in a saving of $22.089 billion. However, the table at page 8 of the report shows an excess expenditure of $1.138 billion due to the non-inclusion of the supplementary estimate of $23.227 billion.
Contingencies Fund
During the latter half of 2021, 39 advances totalling $7.019 billion were made from the Contingencies Fund, two of which valued at $3.889 billion, or 55.4 percent, relate to the Ministry of Agriculture. These advances were all cleared before the end of the year via two supplementary estimates. Details of these advances were, however, not shown, and there was no further comment from the Auditor General, unlike previous years where the abuse in the use of the Contingencies Fund was highlighted. For example, in 2019, the Auditor General reported that seven advances totalling $4.150 billion were made, all of which were to meet routine expenditure and therefore did not satisfy for the grant of such advances. He also produced a table shown the list of advances and the purposes for which they were granted in support of finding.
In 2020, only six advances totalling $792.331 million were from the Contingencies Fund, and there was no adverse comment from the Auditor General.
Deposit Funds
By Section 42 of the FMA Act, the Minister may establish one or more Deposit Funds into which public moneys shall be paid pending repayment or payment for the purpose for which the moneys were deposited. The financial statements of the Deposit Fund showed a balance of $14.931 billion as at 31 December 2021.
The Auditor General questioned some of the figures shown in the financial statement, especially those that remained static for several years. However, the Ministry maintained that the amounts reported were accurate. In particular, an amount of $1.555 billion is shown as owing to statutory and other bodies, which has been coming forward since 2004.
The Ministry explained that this is residual balance after transfers were made to the Consolidated Fund. Given the passage of time, it would be appropriate for the Ministry to transfer the remaining balance to the Consolidated Fund and close the account, while the other amounts should be thoroughly investigated with a view to cleaning up the records.
Schedule of Outstanding Loans
The Schedule of Outstanding loans shows four loans totalling $81.202 billion remaining outstanding, of which Guyana Sugar Corporation (GUYSUCO) and Guyana Power and Light (GPL) accounted for $29.323 billion and $51.572 billion, respectively. The last set of audited accounts of GUYSUCO was in respect of 2018. In these accounts, amounts totalling $13.822 billion were shown as owing the Government, mainly in relation to the construction of the Skeldon Estate Factory. In the case of GPL, the last set of audited accounts was in respect of 2020. These accounts showed a long-term liability to the Government in the sum of $38.396 billion. It is, however, not clear what checks the Auditor General carried out, especially as regards the reconciliation of the amounts shown in the records of these entities with those shown in the Schedule and whether there were other loans that were not reflected therein, before issuing an unqualified opinion on the Schedule.
Stores Regulations
In several parts of his report, the Auditor General referred to the non-compliance with the Stores Regulations 1993. These Regulations were prepared by this columnist at a time when storekeeping and stores accounting were largely manual. Considering the rapid advances in information technology since then, the Regulations are in dire need of review. For example, do we still need manual bin cards kept by the storekeeper and a stores ledger in the accounts section of a Ministry when a computerized system with appropriate built-in checks and balances can be implemented?
To be continued –
