Report of the Auditor General 2001 A tale of bad accounting
By Christopher Ram
Stabroek News
January 5, 2003

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Business Page today begins its review of the Report of the Auditor General on the accounts of the ministries/departments/regions for the year ended December 31, 2001. When one considers that the Auditor General, Mr Anand Goolsarran, is on leave, the achievement of the acting Auditor General Mr B Balram and his team is all the more remarkable. Readers will recall that the report on the year 2000 was issued on April 30 of this year and was reviewed in these columns on May 19 and 26, and June 3, 2002. The review of the reports continues to depress, confirming as it does the little regard shown for proper financial management at all levels in the society. While we must be seriously concerned by the magnitude of the problem at the level of the central government we cannot ignore the absence of proper financial management at the level of local government, statutory bodies and trade unions. Clearly mismanagement and poor accountability are now rooted in our culture, making it all the more difficult for any one sector to criticise any other.

By way of example, the report indicates that the last year audited for Rose Hall Town Council was 1981, and that "audits are in progress for 1994-1998," while for Linden the last year audited was 1984, the report noting "no financial statements for later years." Georgetown and Corriverton have both been audited to 1998 and audits are in progress for 1999 - a significant improvement for the Georgetown City Council. The report also identifies those statutory bodies the audits of which are in arrears for five years or more. These include the National Science Research Council (1982), Sugar Industry and Labour Welfare Fund (1993), the University of Guyana Pension Scheme (1994) and the State Planning Commission (1991). It seems that the UG Pension Scheme will run foul of the Insurance Industry Act.

Over the years, Business Page has shared the frustrations and sentiments of the report at the financial mismanagement and blatant disregard for public funds and established controls (not sure if we can call them established controls any more). It seems clear that in Guyana nothing shocks any more and the report appears to have no impact on those whose stewardship it reviews, and the rest of the citizenry, all of whom are directly or indirectly affected. Even the Public Accounts Committee, perhaps the only functioning parliamentary body, seems to be overwhelmed by its inability to bring about any change. Business Page understands that the PAC has not even completed its review of the 2000 report while the Ministry of Finance blatantly disregards the requirement that it publish a Treasury Memorandum indicating the steps it proposes to take in relation to the deficiencies identified in the report.

If readers were to go back to earlier reviews done by Business Page of previous reports, they would notice the monotony with which the same cases of poor accounting, fraud and mismanagement take place year after year within the same ministries, departments and regions. They would notice for example that the number of bank accounts which are unreconciled keep rising, that we continue to fund several public entities which do not meet minimum standards of accountability, the abuse of the Consolidated Fund, splitting of contracts to bypass tender rules, misuse of the lotteries' monies and the complete disregard for the Financial Administration and Audit Act by just about every ministry, department and region.

The audit report
An auditor carries out his work with the objective of expressing an opinion on the financial statements which he has audited. He does this by taking what he considers would be a representative sample of transactions and tests them for accuracy, authenticity, and authorisation by way of approved procedures. If these conditions are all or substantially met he will issue what is referred to as an unqualified opinion. If not he would qualify his opinion, or state that he is unable to form an opinion or indicate that the financial statements do not present a proper picture. In the case of the 2001 statements the AG specifically mentioned his inability to satisfy himself with 1) Statement of Outstanding Loans and Advances from the Consolidated Fund, 2) Balances held on deposits by the Accountant General and 3) Statement of current assets and liabilities of the Government.

The certificate is identical to the preceding two years while the discrepancies and shortcomings identified in the body of the Report are different only in the higher number of cases and the larger sums involved.

Timeliness of the report
The report was submitted to the Speaker of the National Assembly on October 31, 2002, one month later than the statutory deadline of September 30, 2002. This is a commendable effort from the AG's office taken into account the limited resources at its disposal and the fact that none of the ten (10) statements and accounts including the Statement of the Receipts and Payments of the Consolidated Fund, the Statements of Public Debt and the Current Assets and Liabilities of the Government on which he reports was submitted to AG within the required time-frame of four months after the year-end.

However, at least ten months would have elapsed before the findings were reported thereby reducing the extent to which discrepancies could be acted upon and recommendations implemented. A critical part of the process of addressing the discrepancies is the operation of the Public Accounts Committee but its failure to complete its work on time and make strong recommendations on the shortcomings is almost fatal. As long ago as November 25, 2000, Business Page had called for changes in the terms of reference of the PAC if its work is to have more than academic interest. Regrettably, nothing appears to have been done while the nation can only watch helplessly.

Discrepancies continue
What was particularly striking about the 2001 report was the similarity with the findings reported for the year 2000 - the same ministries/departments/regions and the same problems except that the numbers are larger. Here are some of the issues identified in the Executive Summary presented by the Auditor General.

The Consolidated Fund was overdrawn by $63.726 billion (2000 $54.263 billion) at the end of 2001 while the sum total of Government bank accounts (including the overdrawn balance on the Consolidated Fund but excluding the balances on the bank accounts of special projects) reflected a positive balance of $15.983 billion (2000 $22.143 billion). Despite the Consolidated Fund being the single most important account of the Government, the bank account had not been reconciled since February 1998.

Significant breaches in the Tender Board Regulations at the Guyana Defence Force and the Supreme Court were noted. In the case of the GDF there was lack of a system of competitive bidding and numerous instances of contract-splitting. In the case of the Supreme Court contract-splitting and "apparent misappropriation of funds" were uncovered in Georgetown and other magisterial districts due to the absence of proper segregation of duties and failure to reconcile bank accounts.

The report also identifies as a "serious breach of parliamentary approval" the transfer by the Ministry of Home Affairs of the unspent balances totalling $18.8 million on five capital programmes to deposit accounts instead of to the Consolidated Fund.

The majority of ministries/ departments/ regions violated Section 36 of the Financial Administration Act (FAA) which requires all unspent balances as at December 31 of every year be surrendered to the Consolidated Fund. Cashbooks were kept open until January 23, 2002, while payments were systematically and deliberately backdated to December 31, 2001. In Enron this was called their time machine.

The report notes that while a total of 1,003 cargo vessels arrived in port in 2001, completed ships' files in respect of only 220 (22%) were made available for audit examination. The remainder are reported to have been "still at the various transit sheds." In relation to the Internal Revenue Department, of the 3,712 registered companies, less than 10% (327) had submitted annual returns.

The Ministry of Education continues to misuse the main bank account to make advances and the report points out that for the period 1997 to 2001, 565 advances totalling $49 million remained outstanding. Ninety (90) payment vouchers for a total of $19 million or an average of $211,111 per voucher were not presented for audit examination.

And at the Ministry of Public Works and Communications, there were several instances of overpayments on contracts. The report notes without identifying the contractor that a contract valued at $179 million for sea defence works was treated as a variation of an ongoing contract for a smaller value of $179 million instead of being awarded by a process of competitive bidding.

The majority of the advances granted from the Contingency Fund did not satisfy the criteria for such advances. This was because recourse to the Contingencies Fund was an easier and more expedient proposition than seeking Supplementary Estimates from Parliament. Similarly, the Ministry of Finance continues to misuse the proceeds from the Guyana Lotteries which it retains in a special bank account. Of the $1.7B received so far, only $211.7M has been paid into the Consolidated Fund while payments of $1.5B have been made out of the special (read unlawful) account without parliamentary approval.

This week’s Business Page concludes the review of the Report of the Auditor General (AG) on the accounts of the Ministries/Departments/Regions for the year ended December 31, 2001 which was started last week.

The Consolidated Fund
Under the country’s constitution all revenues are to be paid into the Consolidated Fund (CF) and all expenses met therefrom. This would make the CF the most important account of the government. Despite this, the bank account has not been reconciled since February 1988, a point recurrently made by the Auditor General who cautions that the failure to reconcile bank accounts “can lead to the perpetration of serious irregularities without detection.” The Report points out that some efforts are being made to address the problem but that the approach and the process being employed will not yield reliable results.

The CF was overdrawn at the end of 2001 by some $63.7B, an increase of $41.3B since 1995!! Not only has the overdraft gone up but the net positive balance on all the bank accounts has gone the other way - a decrease from $22.1B in 2000 to $15.98B at December 31, 2001. It is worth noting as well that the Report cautions that given the level of resources at the disposal of the Accountant General, the Non-Sub-accounting bank account which has a balance of $13.2B has become unmanageable and recommends the transfer of the balance to the Consolidated Fund. Despite the sums involved, the Minister of Finance does not appear to regard this as either urgent or important.

At the Ministry of Public Works and Communications, four senior officers of the Central Accounting Unit have been working on reconciling bank accounts of the ministry since 1996. However, after incurring expenditure of $851,891 in overtime, the reconciliations are still not up to date.

Readers will appreciate that cash and bank balances are the most liquid of assets and most easily susceptible to manipulation. The government’s failure to arrest this situation is perhaps its most egregious example of poor financial management.

Repair or buy?
The Report notes that the Office of the President spent $23.1 million over the last three years on repairs and maintenance of 17 vehicles despite earlier recommendations by the AG to dispose of these vehicles. Similarly the Ministry of Information spent $1.7 million on a single vehicle while the Ministry of Public Works spent $18.5 million on 18 vehicles over the same period. The AG noted that the repair costs in some cases for vehicles exceeded their duty free prices.

Except because of limits on capital expenditure, it is hard to understand why the Minister of Finance would allow such a situation to persist, particularly since it only increases the deficit on the current account.

Multiple contracts
The Report highlights the fact that repairs on the five buildings at the Office of the President were executed under sixty-six contracts valued at $3.6M, while the maintenance of the Amerindian Hostel was executed by sixty-four contracts valued at $2.9M. The same pattern prevailed in several other entities.

In the case of the Ministry of Agriculture five contracts valuing $4.8 million were awarded to the same contractor (name not stated) without competitive bidding. At the Ministry of Public Works and Communications, eleven contracts valued at $4.2 million were not awarded through a system of competitive bidding while numerous contracts were also split to avoid submission to the Tender Committee. The Report also notes that in the same ministry, a compensation package of US$20,300 plus a vehicle and other reimbursable per month was paid to a road safety consultant without Cabinet’s approval. This contract was initially for one year but was extended for another.

The government granted remissions of duties totalling $16.33 billion (2000 - $13.2 billion) to various sectors of the economy, an increase of 23.7% following a 75.13% increase in 2000. The remissions in 2001 represented 90.2% of the actual collections (2000 - 69%). The Auditor General reports that he was unable to verify $1.54 B of the remissions in 2001 since the records for the period February 13 to April 4 were not produced for audit examination. The issue of remissions has been a serious area of concern among the private sector and the political opposition and was in fact addressed in the draft Investment Act prepared for the private sector. The government, however, rejected the attempts to control and make more transparent such remissions which have increased dramatically over the past few years.

The Guyana Revenue Authority received in 2001 some $1.2B to meet its expenses, an increase of 16.1% over 2000. By contrast collections by the GRA fell from $38.1B in 2000 to $37.8B in 2001. The Report also notes that no report has yet been tabled by the Minister of Finance for the Authority which came into operation on January 27, 2000. An annual report is required to be tabled in Parliament within six months of the close of the financial year.

Review of system
The AG recommends urgent review of the financial management system as the present system which has been in existence since colonial times is out of sync with the modern developments. While the review is obviously desirable, it will only make sense if the people or groups responsible for the execution have regard for systems and models. One does not need a system to prevent the GDF and others from splitting contracts to avoid going to the tender committee. Instead of imposing sanctions, Cabinet which is not highly regarded for its financial literacy and respect for systems subsequently ratified such improper transactions. Who then is more guilty - the GDF or Cabinet?

Auditor General’s conflict
The AG is responsible for reviewing and reporting on the accuracy and legitimacy of its own financial transaction creating an obvious conflict of interest. The new draft Audit Act makes provision for independent auditing of the Office but this has been held up at Cabinet level. Business Page suggests that the AG refuse to undertake such an audit which will always be regarded as suspect regardless of the glass ceiling or Chinese wall he may set up in his audit arrangements.

Very poor to fair
There are no quick fixes to the problems of financial management which seem to be rooted in our culture. The massive irregularities reported by the AG are merely symptoms of more fundamental problems within our economic, social and political systems. The establishment of effective Internal Audit Departments within the ministries, departments and regions recommended by the Report would be a step in addressing some of the problems in their early stages. However, at a wider level, we need a massive cultural shift over a sustained period towards a culture of accountability, integrity, professionalism, respect, political stability, maturity, good governance, etc, to solve the current dilemma. We cannot ignore the fact that none of our political parties has shown any commitment to accountability within their parties, feeding the culture in the public sector.

In Good to Great, a book in which James Collins examined why some companies make the leap to greatness and others languish in the doldrums, he stressed the importance of having the right people on board - you need the right people on the bus, get the wrong people off, seat the right people in the right seat, have a good driver and then you will figure where to drive the bus.

While we can only hope for our country to be good and think about great later, we can use James Collins’ analogy - we need a good system of governance (the bus), the right people (policy-makers, executives and effective watch-dog bodies, including the political opposition), seat them correctly (not square pegs in round holes) and a good driver (President and other senior officials) to make the leap not from ‘Good to Great,’ but from ‘Very Poor to Fair.’ That itself would be a remarkable achievement given where we are now.

Year after year, the AG reports on the same weaknesses only to have his Report and recommendations ignored. As we pointed out last year, an independent auditor would certainly consider resigning his position if the client showed no interest in correcting major deficiencies. The AG has no such option and must continue to demonstrate the same level of professionalism in the face of extreme frustration. This frustration is shared by the rest of the society including members of parliament. Readers will recall that PNCR Mr Stanley Ming was so upset about the lawless state of the management and affairs of government finances that he publicly announced withholding payment of taxes and resigning from Parliament if there was no significant improvement in these matters in subsequent years. It would be interesting to have Mr Ming’s reaction to this Report.

Under our constitution the president and his ministers “solemnly declare that [they] will bear true faith and allegiance to the People of Guyana, that [they] will faithfully execute the office of... without fear or favour, affection or ill-will and in the execution of the functions of that office [they] will honour, uphold and preserve the Constitution of the Co-operative Republic of Guyana.” The president and his ministers must take responsibility for their ministries as their oath of office requires.

This Report can only feed dissatisfaction among citizens who crave for law and order in all areas of public and private life.

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