Guyana’s Public Financial Management Action Plan (Part II)

In our column of 6 May 2018, we emphasised the importance of procurement planning and highlighted the key factors contributing to leakages in our procurement system. We estimated such leakages to be in the order of 20 percent based on a survey we had carried out early last year. The estimate is consistent with previous assessments that we had carried out. We were at pains to point out that this should not be interpreted as the extent to which corruption exists in our procurement system, though a significant but undetermined portion may be due to corrupt behaviour.

Guyana, however, is not alone as regards procurement problems. The President and CEO of the Institute of Internal Auditors identified nine risk areas in local governance that are susceptible to graft. He considered procurement to be a key area of concern, especially infrastructure projects, and referred to an OECD note which found that for publicly funded construction projects, 10% to 30% of the investment may be lost due to mismanagement and corruption. And in a 2013 McKinsey report, the author expressed the view that due to the lack of sufficient risk management of large infrastructure projects, in excess of US$1.5 trillion may be lost globally over the next five years, not to mention the loss in GDP growth, as well as reputational and societal risks.

In our column of 13 May 2018, we began a discussion of the Government’s Public Financial Management (PFM) Action Plan that the Government had developed in 2013. The Plan is to be found at the Ministry of Finance’s website https://finance.gov.gy/wp-content/uploads/2017/06/pfm_action_plan_2015.pdf and covers six key departments/agencies, namely: Internal Audit of the Ministry of Finance; Office of the Budget; National Procurement and Tender Administration Board (NPTAB); Accountant General’s Department; Audit Office; and Guyana Revenue Authority.

So far, we have covered the first two items. Today, we continue our discussion by examining the remaining items of the PFM Action Plan.

National Procurement and Tender Administration Board

Much has been said in previous columns about the operations of the NPTAB and need not be repeated here. However, there is one issue that remains unresolved. Section 54(1) of the Procurement Act requires the Cabinet and the Public Procurement Commission (PPC) to review annually the Cabinet’s threshold for the offer of ‘no objection’ to the award of contracts, with the objective of increasing that threshold over time so as to promote the goal of progressively phasing out the Cabinet’s involvement and decentralising the procurement process. However, Section 54(6) requires the Cabinet’s involvement to cease upon the constitution of the PPC, except for pending matters. The PPC was activated in October 2016 through the appointment of its five members. However, to date there is no evidence of any such review being carried out, and the Cabinet continues to offer its no objection to the award of contracts whose values exceed G$15 million.

There is some confusion as to whether the PPC should take over the role of the Cabinet in the procurement process. Article 212W of the Constitution provides for the establishment of the PPC to monitor the procurement process and related procedures to ensure that they are conducted in a fair, equitable, transparent, competitive and cost-effective manner. It is therefore an oversight body. In the circumstances, it would be inappropriate for the PPC to get operationally involved, especially in relation to approving contracts. This leaves us with the need to strengthen the decentralisation of the procurement process, beginning with the NPTAB and cascading down to the various Ministries and Departments. It is possible that any review of the existing system as envisaged by Section 54 (1) of the Act, is likely to result in a complete overhaul of the system. Until this is done, the Cabinet is unlikely to surrender its role in the procurement process.

 Accountant General’s Department

There are 38 action items in the PFM Action Plan relating to this department, of which: (i) the use of information technology for the recording, processing and reporting of Government financial transactions; and (ii) the implementation of International Public Sector Accounting Standards (IPSAS), are the most relevant. We had written extensively on the functioning of the Integrated Financial Management System (IFMAS) that the Government had introduced in 2004. As the name suggests, IFMAS is an integrated IT-based system involving the full range of PFM procedures – budgetary control, management of cash and other resources, accounting for revenues and expenditures, and financial reporting – using one software suite. If properly implemented and fully functional, IFMAS can significantly improve an organization’s financial management practices through better management of cash resources; more effective monitoring of the budget; improved accountability for all assets (including inventories) and liabilities; timely and accurate financial reporting and ex post evaluation. It can also enhance decision-making, improve overall efficiency and effectiveness of operations, thereby resulting in significant savings.

Guyana’s version of IFMAS contains eight modules. However, two important modules – Purchasing, and Asset & Inventory – remain unimplemented after 14 years since the system was rolled out. In his latest report, the Auditor General indicated that the Ministry of Finance was upgrading its computerized accounting system which would incorporate these two modules. The project commenced during the first quarter of 2016, and training on the use of the upgraded system had commenced. The PFM Action Plan, however, makes no mention of the need to activate these two modules, considering that public procurement consumes as much as 70 percent of the National Budget. 

The Government uses the cash basis of accounting for processing, recording and reporting its financial transactions, unlike what prevails in the private sector where the accrual basis of accounting is used. The limitations of the former are well known, especially as regards the recognition of revenue when earned as opposed to when received; the recording of expenditure when incurred as opposed to when payments are made; and the proper accountability of all assets and liabilities. The system can also easily be manipulated, especially at year end. Recognising these limitations and in order to ensure full and complete financial reporting consistent with the accrual basis of accounting, many countries and international organisations have adopted, or are in the process of doing so, the International Public Sector Accounting Standards (IPSAS) or some variant of it.  IPSAS is consistent with the accrual system of accounting.

The Government has indicated a commitment to implement IPSAS, as evidenced by reference to it in the PFM Action Plan. An analysis of the IPSAS requirements was to have been undertaken by December 2015, followed by a phased implementation by December 2016, including the training of staff. Unfortunately, the latest report of the Auditor General makes no mention of the status of IPSAS implementation, except for a passing reference to the basis of accounting used in the preparation of the financial statements.

Audit Office

The PFM Action Plan for the Audit Office contains ten items, of which the conducting of performance or value-for-money auditing, inclusive of the related training, is most significant item.  A performance audit is a high-level review of a programme or activity to ascertain the extent to which expenditure has been incurred with due regard to economy, efficiency and effectiveness and whether good value for money has been achieved for sums expended. It focuses on actual outputs, outcomes and impacts against those planned; highlights deviations; and makes recommendations for improvement. A performance audit differs from a financial audit which involves the examination of a set of financial statements; and carrying out tests of controls, transactions and balance in order to express an opinion on their fair presentation and compliance with applicable laws, regulations and policy guidelines/instructions.

Over the past decade or two, performance auditing has gained worldwide recognition among   National Audit Offices. Many of them now have the legal mandate to undertake such an audit. By Section 24 (3) of the Audit Act 2004, “the Auditor General shall examine the extent to which a public entity is applying its resources and carrying out its activities economically, efficiently, and effectively and with due regard to ensuring effective internal management control”. However, in the 13 years since the Act became operational, only four performance audits were carried out, of which one was a follow-up review. There is also no evidence that the Public Accounts Committee examined these reports and conducted hearings, as in the case of the Auditor General’s annual report to the National Assembly.

Guyana Revenue Authority

The PFM Action Plan for the GRA contains ten items, including: (i) operationalizing the Value Added Tax Board of review; (ii) expanding the taxpayer base to the various Regions; (iii) training of staff in the Enforcement Department; and (iv) undertaking a risk-based approach in the selection of taxpayers’ files for special review.  Gleaning from media reports, the GRA has been making significant progress in these and other areas, though much more needs to be done. This Column is on record as having stated that the GRA has the potential to double its revenue collection. It is also heartening to learn of the efforts being made stamp out corrupt behaviour within the GRA.

Conclusion

The PFM Action Plan and the Budget Transparency Action Plan are two of the important policy documents relating to public financial management. While significant progress has been made to address the various actions contained in these plans, many of the actions remain a work in progress. These include:

a)       Implementing a Medium-term Budget Framework in support of the Annual Budget;

b)      Adopting the accrual system of accounting consistent with the International Public Sector Accounting Standards to replace the current cash-based system of accounting;

c)       Implementing the full suite of the IFMAS modules to ensure proper and timely    accountability for all revenues and expenditure as well as assets and liabilities;

d)      Having full-fledged and dedicated internal audit units at larger Ministries and Departments in order to strengthen their internal controls;

e)      Advancing the accounting timeframe to ensure the Government discharges its accountability and stewardship responsibilities in a more timely manner; and

f)        Undertaking more performance reviews of Government programmes and activities to ensure that there is economy, efficiency and effectiveness in the execution of Government programmes and activities and that good value for money has been achieved for expenditure incurred. 

Once these actions are completed to satisfaction, we can take comfort and pride in the belief that we would have had one of the best systems as it relates to public financial management.  

Around the Web

Comments