Last Wednesday, the military seized power in the Central African state of Gabon and placed the President Ali Bongo under house arrest. This followed the announcement by the election body that Bongo won a third term in office in a disputed vote. The United Nations, the African Union and France have condemned the coup, while China and Russia expressed the hope for a swift return to stability. The United States considers the situation deeply worrying.
Bongo came to power in 2009, following the death of his father who ruled Gabon with an iron fist from 1967. Since then, Bongo has been accused of electoral fraud and corruption. In 2016, violent unrest broke out after he was declared the winner of the disputed election of that year. He also survived a foiled coup attempt in 2019. In 2007, a French financial police investigation found that the Bongos owned 39 properties in France, 70 bank accounts, and nine luxury cars worth 1.5 million euros. Critics argue that the Bongo family has done little to share the nation’s oil and mining wealth with its 2.3 million people. Gabon is one of the richest countries in Africa in terms of GDP per capita, due mainly to oil revenues which account for 60 percent of the country’s total revenues. However, a third of the population still lives below the poverty line of US$5.50 per day, the threshold for upper-middle income countries. See https://edition.cnn.com/2023/08/31/africa/gabon-military-coup-explainer-intl-hnk/index.html#:~:text=A%20military%20coup%20thrust%20the,winner%20of%20a%20contested%20election.
Last week, an academic colleague, who has a strong interest in the financial accountability of Neighbour-hood Democratic Councils (NDCs), contacted me for assistance. He wanted to know where he could find the audited accounts of the NDCs. I suggested to him that he should contact the NDCs directly, failing which he should approach the Auditor General’s office. My colleague later informed me that his efforts to do so proved futile. During my tenure as Auditor General, the Audit Office generated monthly reports on the status of the audit for all entities for which the Auditor General has audit responsibility. Any member of the public could have visited the office and requested a copy of the document. It is therefore rather unfortunate that the Audit Office was not helpful in providing my colleague with information as to the status of financial reporting and audit of the NDCs in question.
I then advised my colleague to examine the Estimates of Expenditure where it will be shown that local government bodies receive subsidies under the Ministry of Local Government and Regional Development under the line items “Subventions to Local Authorities”. Unfortunately, such examination was also not helpful since the line item showed a block sum covering the ten municipalities and 70 NDCs.
In today’s article, we revisit the financial reporting and audit of local government bodies and seek to provide some answers to my colleague.
What the law says about financial reporting and audit
In our article of 9 January 2023, we stated that non-central government activities are perhaps in greater need of scrutiny, considering the vast amounts of financial resources allocated to these entities via the national budget, coupled with the fact that the accountability framework is not as comprehensive as that of central government. In the case of the latter, the National Assembly goes through a rigorous process before approving the budgets of Ministries, Departments and Regions on a programmatic basis and by line items. Additionally, there are strong constitutional provisions, elaborated on by the Fiscal Management and Accountability (FMA) Act as well as detailed rules, regulations and procedures to be followed in the incurrence of public expenditure. In particular, all budget agencies are required to adhere to the requirements of the Public Procurement Act in the award of contracts for the acquisition of goods, services and the execution of works. Further, the Public Accounts Committee (PAC) scrutinises the audited accounts of central government.
The Municipal and District Councils Act, Chapter 28:01 of the Laws of Guyana requires all accounts of Municipal and District Councils to be prepared not later than four months after the end of each year and for those accounts to be audited as soon as practicable thereafter. The responsibility for the preparation of the annual financial statements in the form set out in the regulations rests with the Treasurer who shall be guilty of an offence if he/she neglects to do so. We have been unable to cite which regulation deals with the form and content for financial reporting for local government bodies. Normally, in keeping with generally accepted accounting principles as promulgated by accounting standards, financial reporting normally includes: (i) a statement of income and expenditure so as to determine the results of operations; (ii) a balance sheet showing the financial condition of the entity in the form of all assets and liabilities; (iii) a cash flow statement showing the movement of cash over the period under review; and (iv) notes to the accounts explaining the accounting policies used in the preparation of the financial statements and further elaboration on individual items.
The Auditor General is the appointed auditor of municipalities and NDCs. He is required to give the Treasurer one month’s notice of his intention to audit the books of such bodies. Within 14 days of the commencement of the audit, the Treasurer must publish a notice to this effect. The notice must state that interested persons have the right to inspect the financial statements as well as to make representation to the Auditor General as to the correctness and legality of the accounts, including the entries therein.
Within one month of the completion of the audit or as soon as possible thereafter, the Auditor General is required to submit his report to the municipality or the NDC, with a copy to the Minister. Upon receipt of the report, the Treasurer must publish a notice to this effect, indicating that the report is open to inspection for a period of 28 days.
Status of financial reporting and audit of municipalities
In 2021, the ten municipalities received a total of $111 million as subvention, compared with $90 million in the previous year. They, however, continue to be in significant arrears not only in financial reporting but also in relation to their audits. The response from the Ministry was that: (i) it continues to encourage local government bodies to submit their financial statements for audit in a timely manner; and (ii) the need for capacity building was identified and training would be undertaken in 2022.
Table I shows the status as of 19 September 2022, the date of the latest Auditor General’s report. One year on, the position is unlikely to change significantly.
As can be noted, only three municipalities are up to date in the submitting their financial statements to the Auditor General. These are Anna Regina Town Council, New Amsterdam Town Council, and Corriverton Town Council. Of the remaining seven, a total of 51 sets of financial statements remained outstanding, with Linden Town Council topping the list with 25 years of accounts still to be presented.
A total of 88 sets of financial statements were with the Audit Office waiting to be audited and reported on, which is a most unfortunate situation. In his 2005 report, the Auditor General stated that the Audit Office received financial statements for Georgetown City Council and Rose Hall Town Council for the years 2005-2006 and 1990-2006, respectively. Although the accounts for subsequent years for these two municipalities were submitted, the audits had not progressed since then. A similar observation, in varying degrees, is made in respect of the six other municipalities. In 2021, the audit of the accounts of Corriverton Town Council was finalized for the years 2002-2012 and for which disclaimers of opinion were issued. A disclaimer of opinion is one in which the accounts were in such a bad shape that the auditor is unable to pronounce on them in terms of completeness, accuracy and validity as well as compliance with applicable laws, regulations and circular instructions.
It is evident that the audit of municipalities has not been assigned the priority it deserves. The respective councils responsible for managing the affairs of these entities are also not devoid of blame for not pressuring the Auditor General to have their accounts audited in a timely manner in order to discharge their financial stewardship responsibilities. And what of the Ministry of Local Government and Regional Development in relation to monitoring the affairs of the municipalities to ensure that they discharge their accountability responsibilities? Does the Minister also not have a responsibility, considering that the Act requires the Auditor General to submit to him a copy of the audited accounts within one month of the completion of the audit?
On several occasions, we raised the matter of the Auditor General receiving several years of financial statements together for a particular entity. The normal practice is for one year’s accounts to be submitted, audited and reported on before the submission of the following year’s accounts. The reason for this is that following the audit, the closing balances of one year are carried forward as the opening balances for the next year, and in many cases these closing balances have to be adjusted.
As regards the Georgetown City Council, I met the Auditor General about ten years ago at the Ministry of Finance. He asked me if I would be interested in assisting in bringing the Council’s accounts up to date. Since then, I have not heard from him. And some seven years ago, I was in conversation with the Mayor, then Deputy Mayor. We discussed the status of financial reporting and audit of the Council, and I offered to assist. He took my telephone number. I am still to hear from him. Perhaps, he had called when I was overseas. The problem with the municipalities that are significantly in arrears in financial reporting and audit, is that it is pointless to endeavour to audit accounts that are five or more years old. In the circumstances, it would more appropriate to draw a line moving forward as we had done in the case of the public accounts which were ten years in arrears.
Neighbourhood Democratic Councils
In 2021, the 70 NDCs received amounts totalling $418.288 million from the national budget as subventions, giving an average of $5.976 million per NDC. A review of the Auditor General’s reports over the years indicates most of these entities are also significantly in arrears in terms of financial reporting and audit. According to the Auditor General, 40 NDCs did not submit financial statements for the years 2017-2020 as of September 2022.
The Auditor General issued 29 audit reports for eight NDCs in 2021. However, 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, comprising merely a statement of receipts and payments which is the most basic form of financial reporting. A qualified opinion is one in which the auditor has certain reservations or disagreements of a material nature that affect the fair presentation of the financial statements.
The following can be gleaned from the 2021 Auditor General report in relation to the status of financial reporting and audit of NDCs:
Eight NDCs did not submit financial statements for audit since they were established;
Two NDCs were last audited up to 1994. Financial statements were not submitted for audit for 1995-2021 for one NDC, while for the other, the Audit Office received financial statements for the years 2008-2014 only;
All the other NDCs submitted financial statements for audit varying periods, some of which contained gaps in financial reporting; and
As in the case of municipalities, several years of financial statements were with the Audit Office either waiting to be audited, or the audits were yet to be finalized and the related reports issued.
Concluding remarks
While we love to boast that every year we have audited public accounts, we fail to reflect on the quality of such accounts as well as their completeness and comprehensiveness. Every year, the Auditor General issues qualified opinions and disclaimers of opinion on individual statements constituting the public accounts, with little or no action taken to remedy the deficiencies identified. In this regard, we should mention that the PAC, whose responsibility it is to scrutinise the audited public accounts, is yet to report on its examination of such accounts for the years 2017, 2018, 2019, 2020 and 2021.
Finally, it is desirable for the financial reporting and audit of local government bodies to run parallel with that of central government so as to ensure that funds allocated to these bodies via the national budget are properly accounted for, and in a timely manner. It follows that there should be no arrears in financial reporting and audit of local government bodies.
