Auditor General’s report… $670M improperly tapped from contingencies fund in ’08

The 2008 Auditor General’s report, tabled yesterday in the National Assembly, also found overpayment of contractors, flouting of the requirement to present log books and vouchers. In addition, the report flagged several breaches in procurement procedures for Region 4, where a supplier was created to supply goods to the administration, as well as the recent $300 million fraud at the Guyana Revenue Authority (GRA), which dated back to the start of 2008.

Previous reports from the Auditor General have highlighted numerous cases of the Contingencies Fund being abused. Most of the ineligible expenditure from the Contingencies Fund during 2008 was associated with the Public Works Ministry and the Guyana Defence Force (GDF). Some $200 million was expended from the Contingencies fund to support the Transport and Harbour Department, while a further $22 million was granted for the completion of infrastructure rehabilitation as part of the Ministry’s work programme. In connection with the GDF, $180 million was disbursed for the purchase of military kits, uniforms, agricultural supplies etc. A further $30 million from the Fund was spent on rehabilitation works done on the GDF’s Essequibo Base while $16,588,000 was used to purchase two vehicles.

Meanwhile, $77,641,000 from the Contingencies Fund was granted to the Finance Ministry to meet expenses for a consultancy project to prepare an electrical line diagram and for the procurement of software.  An additional $41,184,000 was expended for additional costs associated with the Kwakwani Utilities Inc. $72,945,000 was expended by the Home Affairs Ministry for Carifesta X while some $2,300,000 was granted to the Amerindian Affairs Ministry for expenses associated with Carifesta X and Amerindian month. The latter ministry was also given additional provisions of $7,672,000 for its Hinterland Scholarship Programme, to meet expenditure associated with guardians, dorms, uniform and pocket allowance.

The Contingencies Fund was used to grant $3 million to the Education Ministry to pay for outstanding secondary schools text books obtained during 2007, while a further $17,013,000 was used to meet payments for the previous year for Region 1.

Under the law, the Finance Minister must be satisfied that “an urgent, unavoidable and unforeseen need for the expenditure has arisen (a) for which no moneys have been appropriated or for which the sum appropriated is insufficient; (b) for which moneys cannot be reallocated as provided for under this Act; or (c) which cannot be deferred without injury to the public interest…”.Where any advance is made, a supplementary estimate must be laid before the National Assembly as soon as is practicable for the purpose of properly authorising the replacement of the amount advanced.

The Head of Budget Agency, in response, said that the Ministry will be issuing a circular to all Heads of Budget Agencies reminding them of the stipulated criteria for the granting of advances from the Contingencies Fund. The Audit Office has recommended that the Finance Ministry “adopt stringent measures to ensure that there is compliance with Section 41 of the FMA Act concerning the criteria for the granting of advance from the Contingencies Fund.”

The Statement of Receipts and Payments of the Contingencies Fund for the year ended December 31, 2008, reveal that amounts totaling $4.153 were drawn from the Fund via 83 advances.  It noted that at the end of this period, 17 of these advances to the tune of $1.573 billion remained outstanding.  In January 2009, a supplementary paper was passed to clear these advances, the report said.

Region 4 procurement breaches

Meanwhile, among the “unsatisfactory findings” after an examination of the purchase records and documents for 2008 were: breaches in the procurement procedures; the creation of a supplier to supply goods to the regional administration; conflict of interest; a lack of monitoring of purchases; the failure to appoint personnel with the requisite knowledge and expertise to the position of expeditor; and a failure to adhere to procedures in stores regulations. The report said a report would be issued from a special investigation conducted into the situation.

However, it was noted that investigations revealed that during 2008, amounts totaling $6.931M were expended on the procurement of various items from a supplier who commenced business with the regional administration from March 2008. Items such as janitorial supplies, dietary supplies, curtains, and refreshments, were supplied to Diamond Hospital, the REO’s office, and other departments in the region.

It was subsequently found that the supplier was the spouse of driver/expeditor-a fact confirmed when he was dismissed. An examination of payment vouchers along with supporting documents revealed that the quotations were falsified to enable purchasing of the items from the particular supplier. Further, in all instances where purchases were made, two other quotations from two other suppliers were attached. However, the two other suppliers explained that they did not supply any quotations to the region for the same period.

While the expeditor was dismissed, the situation continued in 2009. The report explained that a particular supplier was again created to supply the region from July 2009. Amounts totalling $21.346M were paid to the supplier from July to December 2009. The new supplier started out supplying janitorial items, then branched out. “The supplier admitted knowing this new expeditor and asked him to assist with some business for janitorial supplies,” the report said, adding that the supplier claimed an agreement was reached and commenced in July last year. An examination of payments for the period July to December 2009, found that purchases were deliberately prepared below $250,000 in order to avoid adjudication by the regional tender board, which constituted split purchasing, in contravention of the Procurement Act.

$300M GRA fraud

The report noted that at the time of the audit in 2009, there were 212 allegedly fraudulent transactions totaling $301.257M uncovered at the Customs and Trade Administration. Only 51 of those transactions, totaling $108.137M, were in relation for 2008.

The report explains that the fraud was perpetuated when the cashier, on receipt of a considerable amount of payments, would contact the database Administrator (DBA), providing details of the transactions. The DBA would then backdate the receipt dates of the transactions, effectively removing them from the daily cash listing, against which the receipts are balanced. “This made it possible for the cashier to retain receipts that were not recorded on the daily cash listing,” the report states.

According to the report, the backdated transactions commenced on January 2008, during which time there were two transactions for the same taxpayer totaling $3.863M. The auditor office’s analysis of the backdated transactions for the taxpayer revealed that the individual’s name appeared in 59 of the 212 cases, amounting to over $100M.

The fraud was uncovered when the cashier’s supervisor identified a receipt that did not appear on the daily cash listing. The cashier suggested that there was a “glitch in the software” and said he would have the problem solved. Shortly after, he produced a daily cash listing that included the receipt.

The prime suspect in the fraud is the cashier, the report says, while noting that he fled the country after it was uncovered. It identified the DBA as the other suspect, noting that he is the only person who had database administrator access throughout the period the fraud was perpetuated.