Let the courts decide

 

The word forensic

 

Over the past month or so, Guyanese have heard the words forensic auditing come into frequent use in relation to the activities of the past government. The word forensic in particular is associated with criminal activities and Guyana even built a forensic science laboratory to aid in the investigation and prosecution of various crimes, but particularly that of homicide. Very little is known about the work done at the forensic laboratory and how often evidence gathered and processed there makes it into a court of law. The words forensic auditing have similar intent. They signify the intent to pursue criminal activities of a financial nature or with financial implications in a court of law. The decision by the Granger administration to conduct the audits has representatives of the PPP/C making claims of a witch-hunt against them. The attachment of the word forensic to the activity of auditing or accounting lifts the profile of the work and, though it may start as a financial inquiry, the word forensic enables the inquiry to go wherever the evidence leads it. Where there is wrongdoing, that evidence usually ends up in court. The forensic audit therefore takes the matter out of the political realm and converts it into a matter about the rule of law. This article examines the usefulness of the investigative technique in light of the public’s perception that Guyana was a highly corrupt country.

 

 

It is time

 

Before discussing the forensic audit, it is necessary to understand why the new government has chosen to undertake a forensic audit of several government institutions and activities. The pursuit of the audit exercise is vital to setting the stage for proper accountability. In a country which has spent in excess of $1.2 trillion on public works over the last eight years, public financial management becomes a very important matter. Several high-profile accounts are empty. Further, the new government understands that Guyanese have a desire to know what the money spent by the PPP/C administration truly accomplished. When a government gives taxpayers a US$200 million sugar factory that hardly works, when it gives taxpayers a US$4 million debt from an unfit contractor for a specialty hospital, when it gives taxpayers an unfinished and broken fibre optic cable to Brazil, when it gives taxpayers a US$15 unfinished road to nowhere, when it gives taxpayers a sugar industry with $90 billion in debt, when it cannot tell taxpayers what has happened to the money of an unbuilt $900 million technology park, it is time to find out where the money went. Guyanese have asked to be told for several years, but never got any satisfactory answers. The expression “it is time” is no longer a political slogan. It is now a serious matter.

business pageFor several years now, there has been a perception that Guyana was a corrupt country. Ever since Guyana appeared on the Transparency International (TI) index, it has repeatedly found itself at the bottom of the scale among some of the most corrupt countries in the world. The perception of corruption among Guyanese and the international community intensified with a pattern of procurement and public investment that seem to contradict the spirit and intent of the Procurement Act of 2003.

 

 

Where there is smoke

 

Guyanese know that where there is smoke there is fire. In too many instances, public funds were used to create public assets which then ended up under the exclusive control of private individuals without rational explanation. This is the case with the Berbice River Bridge and the construction of the Buddy’s Hotel at Providence (circa 2007). The latest addition was the damaged and unfinished fibre optic cable project to Brazil. All these projects have the common characteristic of the taxpayer funding the creation of the assets and then private investors taking control at no or minimal cost and risk to them. Such a practice placed a few handpicked persons in an unfair competitive advantage while the PPP/C government pretended that it was pursuing liberal economic policies. All the instances in which this practice occurred are unknown to us and Guyanese must find out so that they can build a more competitive business economy and greater confidence in their government.

Guyanese feel offended too knowing that trillions of dollars have been spent and not all were used for the purposes intended. Despite concerns about income inequality and poverty, nearly 20 per cent of the Guyanese population earns less than eight per cent of the income generated by the national economy. Guyanese have learnt too that poverty levels are estimated to be as high as 36 to 40 per cent despite massive government spending and several years of continuous growth in the economy.

 

 Uncertainty

 

LUCAS STOCK INDEX The Lucas Stock Index (LSI) remained unchanged in trading during the third period of June 2015.  The stocks of three companies were traded with 22,732 shares changing hands.  There were no Climbers and no Tumblers.  In the meanwhile, the shares of Demerara Distillers Limited (DDL), Demerara Tobacco Company (DTC), and Guyana Bank for Trade and Industry (BTI) remained unchanged on the sale of 22,562; 120 and 50 shares respectively.
LUCAS STOCK INDEX
The Lucas Stock Index (LSI) remained unchanged in trading during the third period of June 2015. The stocks of three companies were traded with 22,732 shares changing hands. There were no Climbers and no Tumblers. In the meanwhile, the shares of Demerara Distillers Limited (DDL), Demerara Tobacco Company (DTC), and Guyana Bank for Trade and Industry (BTI) remained unchanged on the sale of 22,562; 120 and 50 shares respectively.

Corruption is one of the things that creates uncertainty in a business environment. It takes many forms and as Kenneth M Dye noted in discussing corruption and fraud detection by supreme audit institutions it “makes no economic distinction and infects all forms of government.” Bribes and kickbacks have no fixed price since the demands of public officials seem to vary with mood and greed. Investors find the cost of doing business too high since they are subject to the bribes and kickbacks that public officials demand. Dye further noted that “corruption erodes public confidence in political institutions and leads to contempt for the rule of law, it distorts the allocation of resources and undermines competition in the marketplace, and it has a devastating effect on investment, growth and development.”

The perception of corruption intensifies with the repeated contradictions between an economy that was growing annually and the stagnation of people’s lives. The manifestation of this contradiction were the many cruel and desperate acts of survival that make newspaper headlines. There are daily revelations of desperation with Guyanese fetching illegal drugs to foreign destinations, the ambush of returning Guyanese and other visitors by family and strangers, the brazen robbing and killing of businessmen and women and the invasion of shops and homes by bandits. This social abnormality apparently infected public institutions, including the Police Force and other disciplined services. The Police Force continues to discover bad cops within its ranks and is trying to kick them off the force.

 Systemic failures

Without seeking to cast aspersions on anyone, one might ask the question why with a government audit department and periodic reports issued by the Auditor-General would it be necessary to have a series of private independent auditors examine the financial and operational conduct of the previous government. Though not

specific to Guyana, Kenneth M Dye observed also that “audit staff tend to take a clerical approach [to their work], demanding strict compliance with procedures while often missing the objectives of the procedures.” The fundamental point of Dye is that while compliance with the rules and procedures is critical to public accountability, the audits done by an Auditor-General’s (A-G) office often miss systemic failures in government expenditures that result in large losses to the public treasury.

A good example of this observation by Dye is the case involving the aborted loan by the Guyana Geology and Mines Commission (GGMC) to the Central Housing & Planning Authority (CH&PA) in January this year. The denial of this loan was a result of challenges made by the public not by authorities in the A-G’s office. In its defence, the government cited several precedents to support its request for the loan and to justify being allowed to continue the practice. In making this claim, the PPP/C government was implying that the public audit office did not challenge similar loans in the past. Further, the only money that GGMC should have been holding was money which came from its own production activities. Inquiries by this writer revealed that GGMC never undertook any mining operations of its own. In effect, therefore, the money that it was collecting was the taxes and royalties that belonged to the central government or in the Consolidated Fund. This writer is unaware of evidence that the audit office ever challenged GGMC to show why it should not pay over money collected on behalf of the central government to the Consolidated Fund. As a result, large sums of money escaped public scrutiny.

Further, there was no challenge to the public-private partnership scheme of the government, even though the practice of the government appeared unfaithful to the purposes of the policy and tended to put public investment at risk. Public-private partnerships are intended to save the taxpayer from having to bear the total burden of a costly investment in a public good or service by inviting the private sector to share the investment risk. The practice of the PPP/C government has resulted in three known instances in which public funds were used to create public assets that ended up in the control of private individuals. As mentioned earlier, the Berbice Bridge is one such instance. An attempt was made to make the Marriott an investment in which the government bore the major cost and then transferred the control of the asset to a private investor at about 12 per cent of the cost of the asset.

One also has to wonder to what extent the office of the A-G sought to enquire about the rationale of tax expenditures and to link them to public value. What people might not realize is that tax policy, like interest rates, has a bearing on many prices in Guyana, including the foreign exchange rate, and as a consequence on their lives. These are matters that are not regularly investigated by the office of the A-G and Guyanese were left to live with the illogical explanations of the past government.

Restore confidence

The Granger government has chosen to rely on the forensic audit to restore confidence in the public accounts. Part of the reason is that corrupt practices do not always leave an easily discernible trail. Experts point out that the forensic audit is the best thing to use when there is minimal initial information with which to work. Whether Guyanese like it or not, a forensic audit is needed especially in situations that are based on mere suspicions since a forensic audit is the only known technique of proving or disproving a fraud.

 All of Guyana

The forensic audit differs from a regular financial statement audit in at least two important ways. First, it does not place emphasis on the issue of materiality. It does not matter if the magnitude of the misstatement or omission of accounting information is significant. Once a problem is spotted, the forensic audit pursues it to the end. The second thing is that the forensic audit gathers evidence for use in a court of law. Documentary evidence and witness statements are very important and must be gathered and preserved in a manner similar to that of other criminal investigations. While the audit of financial statements might be the start of the process itself, the forensic engagement enables the auditor to use the fraud theory to build a case. The fraud theory approach enables the auditor to identify the possible fraud scheme, determine the possible manner in which it was perpetrated and to identify possible effective procedures to prove or disprove the fraud. Consequently, despite the claims of witch-hunting by the PPP/C, the forensic audit benefits both the previous and the current government.   In other words, it redounds to the benefit of all of Guyana.