In our column of 23 January 2017, we had stated that the Cabinet erred in assigning the transactions audit of NICIL to the Auditor General because the latter had given a “clean bill of health” on the accounts of NICIL for the years in question. It has been more than a year since the audit was handed to the Auditor General, but little or no progress has been made so far. The Auditor General contended that the Special Organised Crime Unit (SOCU) was holding up the audit since it had not released certain files to him. This claim was stoutly rejected by SOCU.
I recall my meeting with the Auditor General in January 2015 at which he demanded my working papers files on NICIL. I told him that as per the Cabinet decision, I had handed over the files to the Police and by extension SOCU. I nevertheless provided the Auditor General with a summary work papers file, which I had constructed from the detailed work papers files, in support of my findings and recommendations. I also discussed with him the areas I felt needed to be probed further. I then wrote to the Auditor General on the outcome of the meeting and I copied the correspondence to the Minister of Finance. I was therefore surprised at the lack of progress in relation to the audit. This is despite the fact that the two most senior officials were sent on administrative leave to facilitate the audit, one of whom has since resigned. As far as this column is aware, the other official is still on leave. To date, that official would have received approximately $12 million in emoluments while still on administrative leave!
The Finance Minister disputed the claim that the Cabinet had erred in assigning the transactions audit of NICIL to the Auditor General. He contended that the latter’s permission was needed before assigning the audit to someone else, and that in any event the appointment had to be made by the Auditor General. However, in respect of all of the forensic audits undertaken to date, none of the auditors were appointed by the Auditor General. Rather, the Ministry of Finance made the appointments.
In the light of the above, we devote today’s column to a discussion of the role of the Auditor General in the hope of providing some clarity in relation to his mandate.
Constitutional and legislative provisions
Articles 223 (2) and (3) of the Constitution provide for the Auditor General to audit the public accounts of Guyana and to submit his report to the National Assembly via the Speaker. Public accounts have been defined to include: (a) all central and local government bodies and entities; (b) all bodies in which the State has controlling interest; and (c) all projects funded by way of loans or grants by a foreign State or organization. These accounts are the annual financial statements of central and local government agencies, State-owned/controlled entities and foreign-funded projects.
Section 73 of the Fiscal Management and Accountability (FMA) Act specifies the financial statements that are required to be submitted to the Auditor General for audit. These include:
(a) a statement of revenues and expenditures for the fiscal year in the form of the End of Year Budget Outcome and Reconciliation Report;
(b) a statement of contingent liabilities;
(c) financial reports of Extra-budgetary Funds, the Deposit Funds and other accounts approved by the Minister; and
(d) such other financial information relating to the fiscal year that the Minister deems necessary to present fairly the financial transactions and financial position of the State.
For the fiscal year ended 31 December 2015, the Auditor General received the following eleven sets of statements from the Ministry of Finance and the heads of budget agencies:
(i) End of Year Budget Outcome and Reconciliation Report of the Consolidated Fund (Revenue);
(ii) End of Year Budget Outcome and Reconciliation Report of the Consolidated Fund (Expenditure);
(iii) Receipts and Payments of the Consolidated Fund;
(iv) Expenditure of the Consolidated Fund as compared with the Estimates of Expenditure;
(v) Expenditure in respect of those Services which by Law are directly charged upon the Consolidated Fund;
(vi) Receipts and Payments of the Contingencies Fund;
(vii) Current Assets and Liabilities of the Government;
(viii) Appropriation Accounts of Heads of Budget Agencies;
(ix) Receipts and Disbursements by Heads of Budget Agencies;
(x) Schedule of Public Debt; and
(xi) Financial Reports of the Deposit Funds.
The Auditor General as the external auditor of the public accounts
Section 4 of the Audit Act 2004 states that the Auditor General shall be the external auditor of the public accounts of Guyana which comprise the consolidated financial statements of the State and the accounts of the heads of budget agencies. These statements and accounts do not exist until after the end of the fiscal year, and it is the responsibility of the Minister and heads of budget agencies to submit them to the Auditor General not later than 30 April of the following year. The Auditor General examines the statements and accounts as presented, and carries out tests as he considers necessary to express an opinion in terms of their proper presentation and compliance with applicable laws, regulations and policy directives. He then reports the results of his examination to the National Assembly via the Speaker not later than 30 September.
The Auditor General’s duties and responsibilities are not dissimilar to those of the company auditor who examines the company’s financial statements prepared and approved by the directors and reports the results of his/her examination to the shareholders at the annual general meeting. The auditing of the consolidated financial statements of the State and the accounts of heads of budget agencies is therefore the core responsibility of the Auditor General.
Provision for additional audits to be undertaken
By Section 4 (2) of the Audit Act, the Government may cause an additional audit to be conducted by an auditor other than the Auditor General where an agreement entered into between the Government and an international financial institution so dictates. This provision was not in the original draft legislation but was inserted to cater for situations where international funding agencies, such as the World Bank, insist that the financial statements of the projects they finance, be audited by private auditing firms. One recalls the World Bank-funded Essequibo Road Project which was terminated in the late 1990s because of serious irregularities uncovered by the Audit Office, popularly referred to the “Stone Scam”. The task manager of a funding agency once told me that the reason for the insistence on private auditors is that they deliver on time and issue “clean” reports, unlike the Auditor General! To satisfy the provisions of Section 4 (2), the Auditor General has been contracting the services of Chartered Accountants in public practice to undertake such audits.
By Section 4 (3), the Minister of Finance may request the Public Accounts Committee to cause an additional audit to be conducted by an auditor other than the Auditor General. This provision was also inserted into the draft legislation because of the uneasiness of the Administration in relation to the adverse and critical reports issued by the Auditor General for the years leading up to the passing of the Audit Act. It is an unprecedented piece of legislation governing the work of a supreme audit institution. To date, it has not been used.
Contracting out arrangements
Recognising the enormity of the Auditor General’s mandate, there is provision in the Audit Act for engaging the services of Chartered Accountants in public practice to audit the financial statements of some entities, especially those of public corporations and other State-owned/controlled entities. Prior to 1992, only one Chartered Accounting firm carried out such audits, and this was done without the involvement of the Auditor General. The 1993 amendment to the then Financial Administration and Audit Act ended this practice, and at least one dozen Chartered Accounting firms are currently assisting the Auditor General under the contracting out arrangements.
From time to time the management of organisations would commission special audits, without impinging on the work of the external auditors. Such audits require far more in-depth studies and probing over and above those provided by the external auditors during the audit of the financial statements. Invariably, they are undertaken by auditors other that the appointed external auditors for a number of reasons. First, management may need quick results to assist in making important decisions, for example, whether or not to continue the operations of a loss-making department, or to urgently address matters relating to governance and accountability. Second, management may consider that the external auditors do not possess the requisite skills to undertake such assignments. Finally, it may not be appropriate for the special audits to be undertaken by the external auditors since they may pose a conflict of interest. If this were to take place, in effect management may be asking the external auditors to review the work they have already done and for which they have already pronounced.
The same principles apply to the Auditor General. Any special review conducted by the Government or a State institution using outside auditors does not in any way affect the mandate of the Auditor General since it does not relate to the audit of the financial statements constituting the public accounts. Nor does it violate any constitutional and/or legislative requirement. This is not to suggest that the Government may not request the Auditor General to undertake such studies. This is a judgment call that must be made, having regard to a number of factors. For example, in 1992 when there was a change in Administration, the Government engaged the services of the Auditor General to conduct certain special reviews. But it could have opted for private auditors, which would have been within its rights.
The forensic audits undertaken so far are in the nature of special reviews. Except for the NICIL transactions audit, all of these reviews were undertaken by private auditors. The Government has therefore exercised its rights in deciding who should undertake these audits.