A clean confession combined with a promise never to commit the sin again, when offered before one who has the right to receive it, is the purest type of repentance. Confession of one’s guilt purifies and uplifts. Its suppression is degrading and should always be avoided. Confession of errors is like a broom which sweeps away the dirt and leaves the surface brighter and clearer. I feel stronger for confession. Prayer is a confession of one’s own unworthiness and weakness.
Mahatma Gandhi
Last week’s article provoked a reaction from a member of the Public Procurement Commission (PPC), Mr. Joel Bhagwandin, who was also rendering consulting services to ExxonMobil in the form of ‘advice on Government Affairs and political matters’. In doing so, he sought to find ways to discredit me rather than accepting the criticisms in good faith and take appropriate measures to avoid what many believe to be a conflict of interest. In the same vein as the PPP General Secretary and one Mr. Robin Singh, Mr. Bhagwandin alleges that the forensic audits that I had conducted in 2015 were in breach of the Procurement Act 2003 and the Audit Act 2004. This prompted me to respond in a letter to the editor of the Stabroek News. However, judging from the comments from the bloggers as well as the contents of another letter from Mr. Bhagwandin appearing in Friday’s issue of the Guyana Chronicle, it appears that in the haste to put together my response, I might not have properly articulated the issues that I raised, which I now seek to rectify in this article.
Mr. Bhagwandin has since been in contact with me via email, and we had some very fruitful exchanges. In his yesterday’s email to me, he asked me to comment on a situation that currently exists where a member of the PPC is also an executive member of a political party. In our article of 22 July 2024, we stated that:
Considering the PPC’s watchdog and investigative role in the award of contracts by Ministries, Departments and Regions…, the Government is invariably on the receiving end of the Commission’s work. In the circumstances, it is not difficult to consider that the independence and impartiality of any member of the Commission are likely to be seriously impaired if that member displays open alignment or association with the ruling party.
The above statement is also applicable to any member of the PPC who holds an executive position in an Opposition political party. We had stated on several occasions that the Public Accounts Committee (PAC) took the least line of resistance by agreeing to the two major political parties submitting the names of persons to sit on the Commission – three from the ruling party, and two from the Opposition. This has resulted in appointments being made without due consideration for the application of a merit-based system (such as public advertisement, shortlisting, and interviewing, and conducting background checks to ensure political neutrality) to identify individuals with the requisite professional and technical backgrounds, so that the best candidates are selected for membership of the Commission, as is the intention of the 2001 constitutional amendment.
Forensic audit in perspective
There are four main types of audits that are performed in an organization: external audit, internal audit, performance or value-for-money audit, and forensic audit. Perhaps the best-known is the external audit, otherwise known as the financial statements audit. In the case of companies, the external auditor is appointed at the annual general meeting of shareholders to audit the annual financial statements of the organization and to express an opinion on their fair presentation in compliance with applicable laws, rules, regulations and circular instructions. In Guyana, the external auditor must be a member of the Institute of Chartered Accountants of Guyana (ICAG) and be in possession of a practicing certificate from the Institute.
Internal auditing is not directed towards the examination of the annual financial statements of an organization. Rather, it is an in-house activity carried out by employees of the organization to assist the management in improving its operations, especially as regards the evaluation of internal controls and making recommendations for improvement. The Institute of Internal Auditors has defined internal auditing as:
An independent, objective assurance and consulting activity designed to add value and improve an organization’s operations. It helps an organization accomplish its objectives by bringing a systematic, disciplined approach to evaluate and improve the effectiveness of risk management, control, and governance processes.
Recent trends have been to outsource internal audit activities as not only a cost-effective and time-saving measure but also to have relevant and competent outside expertise and to enhance the audit independence. There are, however, certain notable disadvantages, especially for smaller organisations.
Similarly, performance or value-for-money auditing is not directed towards the examination of a set of financial statements and expression of opinion on them. Rather, it seeks to establish whether an organization is using the resources at its disposal in an efficient, economical and effective manner, and whether the actual outputs, outcomes and impact are commensurate with those intended. The United States Government Accountability Office carries out almost exclusively performance audits of federal programmes and activities, most of which are undertaken at the request of Congress, leaving CPA firms to undertake the financial statements audits.
Recognising the significant benefits to be derived from the conduct of such an audit, many National Audit Offices are undertaking more and more performance audits to the extent of resources made available to them to do so. By Section 24(3) of the Audit Act 2004:
In conducting performance and value-for-money audits, the Auditor General shall examine [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.
A forensic audit is a specialized form of audit that requires an investigation into allegations of fraud or mismanagement of the resources of an organization. If the allegations prove to be true, the forensic auditor gathers the necessary evidence to be used in a court of law to prosecute those involved in the fraud or mismanagement. According to Investopedia:
A forensic audit examines and evaluates a firm’s or individual’s financial records to derive evidence used in a court of law or legal proceeding…A forensic audit is often conducted to prosecute a party for fraud, embezzlement, or other financial crimes. In the process of a forensic audit, the auditor may be called to serve as an expert witness during trial proceedings. (See https:// www.investopedia.com/terms/f/forensic-audit.asp)
Before a forensic audit commences, there must be certain allegations of fraud or mismanagement. The forensic auditor seeks to establish the truth or otherwise of the allegations. Once he/she has confirmed that the allegations are true, the forensic auditor then gathers the necessary evidence to be used in a court of law to prosecute the persons involved.
During my tenure as Auditor General, the Audit Office had in place an Investigations Section. Where, during a normal audit, it uncovered evidence of fraud or mismanagement of public resources, the related report was referred to this Section for further investigation. The term “forensic audit” was first used when I returned from vacation in December 2003 while serving the United Nations Peacekeeping Operations in Africa. The Public Accounts Committee (PAC) under the Chairpersonship of the late Winston Murray had invited me to one of its meetings at which it was discussing the draft Audit Act that was prepared by a consultant based on ideas I had developed. The document was, however, so badly written that the Committee was unable to make sense of it. I then volunteered to prepare a new draft. It was at this meeting that I suggested the use of the term “forensic audit” as a replacement for the word “investigation”. Reference to this form of audit can be found in Section 8 of the Regulations made under the Audit Act:
The Auditor General shall establish within the Audit Office a Forensic Audit Unit.
Where any matter is referred to the Forensic Audit Unit, the Unit shall investigate the matter fully and submit a report with recommendations to the Auditor General who, where a criminal offence has been committed, shall refer the matter to the Director of Public Prosecutions and send a copy to the Commissioner of Police for appropriate action.
The forensic audits conducted in 2015-2016
In May 2015, I returned to Guyana, having been attached to the Afghanistan National Audit Office in Kabul as an International Audit Expert. I met briefly with the then Minister of Finance, Mr. Winston Jordan, who indicated to me that the new Administration had decided to conduct forensic audits of State institutions and that, given my experience and training, he would like me to be involved. The Junior Minister of Finance was Mr. Jaipaul Sharma, a former auditor in the Audit Office during my tenure of office as Auditor General. With responsibility for initiating these audits and monitoring progress, Mr. Sharma contacted me and provided me with the list of entities to be the subject of these special audits along with the related terms of reference.
Upon examination of the terms of reference for the audits, I told the Minister that the use of the term “forensic” might not be appropriate since there were no allegations of fraud or mismanagement. Rather, the terms of reference suggested that the proposed audits were managerial in nature or a kind of ‘stock take’ to assist the new Administration in identifying issues that it needed to be aware of in its decision-making, going forward. While he agreed with me, the Minister stated that the Government had already used the term in its various public statements. Whether the audits were forensic or managerial in nature should not be made an issue of contention. Rather, it was whether the audits were contracted in compliance with Guyana’s laws and Regulations and if not, the reasons therefor.
Was there a violation of the Procurement Act?
Section 26(1) of the Procurement Act states that ‘[t]he procuring entity may engage in procurement by means of restricted tendering … when the goods, construction or services by reason of their highly complex or specialized nature, are available only from a limited number of suppliers or contractors…’ Considering that 18 auditors/Chartered Accountants in public practice were selected to undertake the audits of 45 entities, would suggest that the approach adopted was in line with the restricted tender approach. They were not “sole sourced” in accordance with Section 28, as suggested by the Auditor General in his 2015 report. Suffice it to state that in its report for that year, the PAC did not consider the matter to be an issue of contention.
These audits were initiated at a time when the Government was in the process of replacing the members of the National Tender and Administration Board (NPTAB). Time was of essence since using the open tender approach would have taken several months at a time when the new Administration was eager to have independent assessments undertaken as quickly as possible of the entities selected for special review. In any event, the values of the related contracts were below the threshold for the involvement of the NPTAB.
Considering the above, the Ministry of Finance decided to request Chartered Accounting firms as well as individuals with the relevant training and experience to submit proposals for undertaking these special audits. Even if one were to consider that there was a breach of the Procurement Act, is it not the Ministry of Finance that awarded the contracts to be made answerable? The contracts were all signed by the then Finance Secretary, Mr. Nirmal Rekha.
It is important to note that in respect of certain other specialized services, over the years the requirements of the Procurement Act were not followed, for example, in the case of legal services to various Government departments and agencies, most of which were carried out by lawyers closely associated with the ruling party.
Was there a breach of the Audit Act 2004?
Section 4(3) of the Audit Act states that ‘… the Minister responsible for finance may request the Public Accounts Committee to cause an additional audit to be conducted by an auditor other than the Auditor General’. (Emphasis added.) The words “additional audit” clearly implies that the audit must first be conducted by the Auditor General if the Government is not satisfied with the results. That apart, the conduct of any such additional audit would be a breach of the Constitution that vests with the Auditor General the sole authority for auditing the public accounts of Guyana and all authorities of the Government. This requirement was not included in the draft legislation that I had prepared and was inserted despite my objections.
The HPS had argued that the Auditor General’s report should be subject to a second opinion in the event of a disagreement. This was at a time when my reports were very critical of the Government’s financial management practices. I told the HPS that: (i) such an arrangement was without precedent; (ii) no Chartered Accountant in public practice will accept appointment without consulting with me as part of the professional ethics requirements to which all Chartered Accountants, including me, are bound; (iii) if this requirement is inserted into the legislation, it is unlikely that it will ever be used; and (iv) it would be a breach of Article 223(2) of the Constitution that vests with the Auditor General the sole authority for auditing the public accounts of Guyana. Suffice it to state that after 20 years, this section was not used.
The Audit Act also does not cover situations where special audits are commissioned by the Government. In any event, the then Minister of Finance had consulted the Auditor General who agreed that the Audit Office should not be burdened with these additional audits to enable it to concentrate on its core mandate of auditing the public accounts and reporting to the legislature. Accordingly, the Auditor General offered no objection to the Ministry initiating these special audits using the services of outside auditors.
Part IV of the Audit Act deals with contracting of technical experts and Chartered Accountants in public practice. Section 18 states that ‘[i]n the discharge of his functions, the Auditor General may engage the services of technical experts and Chartered Accountants in public practice to serve on a contract basis for limited audit engagements including those required as part of agreements with international organizations’. (Emphasis added.) The special audits that were conducted were not to assist the Auditor General in the discharge of his functions but rather to assist the new Administration to understand the various issues facing it as part of the transitional arrangements and to enable it to move forward.