(Continued)
Update
In the first part of this review (BP 24.8.08) of the Auditor General’s report for 2006 we examined the several statutory obligations of the Audit Office under the constitution and several other statutes. We noted that the office has failed to carry out a substantial and perhaps a majority of its duties including the audit of entities and funds amounting to billions of dollars, noting specifically the Sugar Industry and Welfare Fund which has not been audited for over ten years. During the week I learnt that this fund amounting to approximately $1.25 billion was subject to a major fraud. This should cause an auditor not only to advance the statutory audit of the financial statements but to carry out a fraud investigation as well. While the Audit Act allows the Auditor General “complete discretion” such discretion surely does not extend to whether or not he can choose to carry out the audit of any entity, and the Public Accounts Committee needs to press him on this.
Two of the most important powers of the Auditor General are those of access to information to carry out the audits for which he is statutorily responsible and the freedom (and duty) to report to Parliament on such matters as he considers necessary. To wait for five years before inserting almost as a footnote to his report that such audits are outstanding, amounts to a dereliction of his duty. It would seem as well that there is a fiduciary obligation on the part of the National Assembly to withhold funds until the audits are brought up to date, as the government has done with certain other entities.
On the President’s statement that the bank balances are not real cash but a book entry, the records show that at the end of 2006 the government had over three hundred bank accounts of which one hundred and eight were dormant, but with balances amounting to hundreds of millions of dollars. These accounts were held exclusively with a third party and represent real cash running into billions of dollars. When the President misspoke in relation to the tax laws, the task of cleaning up fell on Winston Brassington. Now it is the turn of Finance Minister Dr Ashni Singh who has been mandated to educate those described by the President as “financially illiterate” even as the President mistakenly identifies the Minister as the authority for the appointment of the Auditor General. In fact the constitution confers that power on the President acting in accordance with the advice of the Public Service Commission, instead of logically that of the National Assembly through the Public Accounts Committee (PAC).
Independence
In this second column in the series we look at some of the other provisions of the Audit Act and their implications for professional quality work by the Audit Office. The first is the duty to act independently. The role of the Auditor General is primarily to provide Parliament, the people and donors with independently derived audit information about the executive arm of government. Parliament exercises its oversight role of the office by way of the Public Accounts Committee chaired by the opposition which from time to time laments its narrow mandate, while Parliament seems to think its own involvement ends with the handing over of the report by the Auditor General to the Speaker of the National Assembly, often several months late.
The Audit Office cannot act independently if it is strangled for funds by the Ministry of Finance, arguably its primary client. Parliament needs to be far more forceful in securing resources for the Audit Office which would be one way to secure its independence of the executive and ensure the effectiveness of the office’s work. The Auditor General’s independence is also compromised because his is an acting position, though as we shall see presently it would not be possible for the acting holder to be confirmed in the post.
This lack of independence was most tellingly demonstrated by a press statement in 2005 referring to instructions by the President to the Audit Office in relation to the long promised flood account. Perhaps not too many people are surprised that three years later the Audit Office has gone silent on this matter. More recently we saw the Auditor General being summoned to the Office of the President in connection with another Customs corruption scandal but will this report too never see the light of day despite the requirement of the law that all reports of the Auditor General be submitted to the National Assembly?
Conflict of interest
The second provision is the prohibition of any conflict of interest between the Auditor General’s official role and that in any private or professional entity or activity with which he is associated. The problem is not only that this limitation is narrowly defined but that it applies to the Auditor General only. The second paragraph of the audit report just published correctly assigns responsibility for preparation of the statements and accounts to the Minister of Finance and Head of Budget Agencies. Those who would wish to defend the situation whereby the wife of the Finance Minister in her role as number two and the most professionally qualified person in the Audit Office, is not bound by this narrow conflict of interest limitation simply do not understand how the audit profession works, what conflict of interest means and the damage done by its very appearance. Any such appearance will mean that the report coming out of the Audit Office will be viewed with scepticism.
Qualifications
The third point is in relation to what would seem to be the required qualification for the post of Auditor General. Could Parliament in enacting the Audit Act 2004 giving to the Auditor General the same conditions of service and benefits including tax free salaries as the Chief Justice have intended that the Auditor General would not have to hold a first degree or a professional qualification? That is the case of the current holder of the post of Auditor General whose audit responsibilities dwarf those of all the professional auditors in Guyana combined.
Depleted
The vacancy rate in the Audit Office averages about 50% with a considerably higher rate at the senior levels.
The website of the Australian Auditor General in discussing its role notes that to be seen to be competent, key stakeholders must view the Auditor General as being the right person for the job and must also have the means to acquire resources according to the skill requirements of the job to be done. Without these characteristics, the assurances of the Auditor General would certainly lack credibility, even if the independence of the office was not significantly compromised.
In his 2002 report, then Auditor General (ag) Mr B Balram referred to the “depleting staff situation in the Audit Office” as a result of which he could only adopt a selective approach in his audit. Consequently he warned against relying “upon the findings of his report to reflect the results of a comprehensive review of the financial operations of Government,” adding that he thought such a review desirable. While four years later the situation is now much worse, there is an absence of similar frankness by the incumbent leaving the uninformed reader with a false sense of security about the state of the government’s finances.
Basic
No wonder then that the Audit Office has chosen the most basic areas of cash and bank, purchases and stores and the maintenance of vehicle log books as his focus for the shortened audit report for 2006. This reminded me of a medical client some time ago who chided me for not paying enough attention to petty cash and postage stamps amounting to less than $5,000 but seemed far less concerned about whether his billing system which accounted for hundreds of thousands of dollars in revenue per month was effective! While Value for Money (VFM) audits are indeed very useful and necessary, there are not enough staff for the more routine functions involved, and many audits go undone for several years. Yet, the Auditor General is diverting his limited resources to set up a VFM Unit whose only progress to date “is presently in the initial stage of formulating its first VFM audit plan,” whatever that means in practical terms.
Sadly, the several limitations are reflected in the scope of his audit and the quality of the report which at times uses language more suited to a newspaper column than a professional report. For example, what must the reader assume from paragraph 6 (iv) of the report that refers to “The balances of 66 inactive bank accounts, of which eight had balances in excess of $100M.” It is standard practice that audit reports should not assume financial literacy and should as far as possible state actual values. And more than once the report gives the impression that the introduction of the new system IFMAS was done during 2006 – in fact this was introduced in 2004, and how too does the Auditor General explain his statement that IFMAS operates a single bank account when some 194 active accounts are maintained?
Trinkets and the wood for the trees
And in paragraph 8, the report repeats the “continued lack of reporting for all gifts to Ministries, Departments and Regions” as if we are talking about trinkets. In fact some “gifts” represent hundreds of millions of dollars and the Auditor General only needs to refer to successive Budget speeches and the newspapers to see some of the cases of huge sums of money. In one paragraph the report noted a UNDP grant of US$4.373M, but why not the others, not only out of a professional obligation but also so that readers can see the full cost of running the country and where the money comes from.
And in the same vein, how could the report not even mention the huge sums being collected by the Privatisation Unit/NICIL that are not being properly accounted for, or why the royalties collected from OMAI are not being deposited into the Consolidated Fund as required by the constitution? The value of special funds not accounted for and spent without any parliamentary approval has gone way beyond the infamous Lotto Funds despite the howls of protest over the years.
To be continued
