The burning of fossil fuels to produce energy releases greenhouse gases such as carbon dioxide and methane into the Earth’s atmosphere and oceans. In 2020, carbon dioxide emissions, which accounts for almost 80 percent of greenhouse gases, were at a record high at 412.5 parts per million (ppm), despite the economic slowdown caused by COVID-19 pandemic. As of last Friday, they reach 419.7 ppm. If carbon dioxide emissions continue to accelerate unchecked, it could lead to extreme warming, resulting in mass extinction of marine life never seen before in the history of the planet. Tropical waters are particularly vulnerable and would experience the greatest loss of biodiversity, while polar species are at the highest risk of extinction. This is according to a study published last Thursday. (See https://ca.yahoo.com/ news/climate-change-could-cause-mass-201229526.html.)
In last week’s article, we commented on a statement made by a government official that for the years 2015-2018 there were more than 500 breaches in the Fiscal Management and Accountability (FMA) Act, the Public Procurement Act and the Stores Regulations. We pointed out these were actual recommendations made by the Auditor General and do not necessarily equate to the number of breaches in the financial rules and regulations since a particular breach may result in several recommendations. More importantly, unimplemented recommendations made in prior years are brought forward to the year under review, and therefore the figure of 500 represents the accumulation of all unimplemented recommendations for previous years as well as new recommendations.
Last week, the Public Accounts Committee (PAC) ordered a criminal investigation be launched into the actions of a former civil engineer for certifying the satisfactory completion of the renovation of a sluice at Lusignan although the works had not been completed at the time the cheque was made out in December 2018. The Engineer acknowledged doing so, but contended that the cheque was only released to the contractor after the works were completed sometime in May 2019. On the other hand, the Permanent Secretary informed the Committee that the cheque was drawn to avoid the return of the funds to the Treasury. She further stated that when the matter was drawn to her attention, she gave the Engineer a stern warning to desist from the practice but could not recall whether she had done so verbally or in writing! The Accountant General, for her part, quite correctly explained to the PAC that the unexpended amount should have been returned to the Treasury and that the Permanent Secretary should have re-budgeted for the expenditure in 2019.
In another matter, the sum of $307.457 million was expended in the procurement of one multi-purpose fire rescue boat for the Guyana Fire Service. The contract was signed on 4 August 2017, and an amount of $131.354 million was paid to the contractor in October 2017 while the balance was paid in August 2018. However, the boat had not been delivered although ten months had elapsed since the second payment was made. The Permanent Secretary informed the PAC that full payment was made after construction of the boat was completed but there were delays that caused the boat not to arrive in Georgetown until one year later. The Finance Secretary informed the Committee that several Permanent Secretaries were advised to desist from the practice of making advance payments to companies, even if they are deemed as reputable, unless the payments are secured by bonds.
What were the FMA Act breaches?
In accordance with Section 26 of the Act, all budgetary allocations approved by Parliament for a fiscal year lapse and cease to have any effect at the end of that year. By Section 35(2), all unpaid amounts at the end of the year relating to incomplete works or services have to be re-budgeted for in the following year. Section 43 also requires all unexpended balances at the end of the fiscal year to be returned to the Consolidated Fund.
While the Engineer was culpable for issuing a certification of satisfactory completion although the works had not been completed, it was the responsibility of the Permanent Secretary to ensure that the unspent balance was returned to the Treasury. From the explanation provided, it is evident that the Permanent Secretary saw nothing wrong in making out the cheque although the works were not completed. The question is: how many similar occurrences might have taken place over the years at the Ministry in question as well as all other Ministries and Departments, which did not attract the attention of the PAC?
As regards the acquisition of the fire rescue boat, Section 31(3)(ii) provides for the authorized official to certify that any advance payment made must be in accordance with the terms of the contract. However, it is unclear whether the contract provided for final payment to be made upon completion of the construction of the boat or upon its delivery in Georgetown. It would be indeed surprising if the former was the case. In any event, it is normal practice for a certain sum to be retained in the event defects are discovered in the defects liability period.
Historical evidence of similar breaches
The above two cases are not isolated incidents of the failure to return unspent balances to the Consolidated Fund and to re-budget the expenditure for incomplete projects in the following year. Almost every year since financial reporting and audit were restored, the Auditor General has been reporting these breaches. In 1992, amounts totalling $2.834 billion representing unspent balances were not returned to the Treasury, as required by Section 36 of the now repealed Financial Administration and Audit Act. In 2000, the majority of Ministries, Departments and Regions failed to surrender to the Consolidated Fund unspent balances at the end of the year; kept cash books open until 15 February 2001; and backdated payments to 29 December 2000. Additionally, the Ministry of Home Affairs transferred unspent balances totalling $17.561M on three capital programmes to the Deposits Fund bank account, instead of the Consolidated Fund, to be used in 2001. Similar observations were made in 1999 and earlier years.
In 2003, the Auditor General reported that the Consolidated Fund continued to be overdrawn by significant amounts due mainly to the failure of Accounting Officers to reconcile the various Government bank accounts and to pay over sums due to the Fund. Some Ministries’ bank accounts were also found to be overdrawn by large amounts, indicating that expenditure was incurred over and above the approved allocations, which is a violation of Section 60. This section provides for the approval of the Minister to incur an overdraft to meet shortfalls during the execution of the budget. However, the overdraft has to be repaid before the end of the fiscal year. It is public knowledge that the Consolidated Fund bank account has been heavily overdrawn over the years, and the overdraft kept increasing due to the incurrence of expenditure in excess of revenue generated. At the end of 2020, the overdraft was $207.078 billion.
Fast forward to the public accounts for the years 2015-2018 which are currently being examined by the PAC. In his 2015 report, the Auditor General identified the following violations:
(a) The bank account for the smaller Ministries and Departments under the control of the Accountant General’s Department reflected a balance of $2.440 billion at the end of 2015, compared with $1.314 billion at the end of 2014. This was due mainly to the failure to pay over to the Consolidated Fund unspent balances over the years;
(b) A large number of items purchased and paid for, had not been received at the time of the audit in 2016, including large quantities of drugs and medical supplies;
(c) Overpayments totalling $376.995 million on contracts awarded prior to 2015 had not been recovered as at the end of 2015, and there was no evidence of disciplinary actions taken against the responsible officials, especially in relation to the certification of the works; and
(d) Expenditure was overstated by $2.538 billion in respect of 16 Ministries, Departments and Regions due to breaches of Section 43 of the FMA Act, including amounts totalling $1.653 billion representing 1,784 cheques on hand at 31 December 2015. Although not specifically mentioned, most of these cheques were drawn close to year-end to exhaust budgetary allocations although full value was not received at the time. This is similar to the matter involving the Engineer referred to above.
In his 2016, the Auditor General reported as follows:
(a) As of September 2017, various items valued $336.725 million had not been received although payments were already made to the suppliers in 2016. Included in this amount were two trucks and three motion scales valued at $109.851M relating to the Ministry of Public Infrastructure; and
(b) A total of 7,150 cheques valued at $9.452 billion were processed and printed in January 2017. Although not stated, these cheques were backdated to 31 December 2016.
Similar observations were made in 2017. In particular, a contractor received an advance payment of $39.0 million for works to be undertaken in Region. However, at the time of reporting, no works had commenced, and the site was abandoned. The same contractor received an advance payment of $73.1 million from the Ministry of Public Health but no significant works had commenced on the site. The Auditor General also bemoaned the continuation of the practice of “cutting and holding” cheques at the end of the fiscal year for ‘valuation of works, poor quality/sub-standard works, poorly prepared Bills of Quantities and contract documents…’.
Finally, the Auditor General’s report for 2018 highlighted the following:
(a) Overpayments totalling $166.076 million were made in respect of 90 contracts awarded by Ministries, Departments and Regions in 2018, of which $63.741 million relates the Ministry of Public Infrastructure. At the time of reporting, only $20.041 million was recovered;
(b) One contractor received an advance payment of $53.0 million for the construction of St. Rose’s High School. At the time of reporting, no construction works had commenced, and the site was abandoned;
(c) There were several instances where capital works valued at $71.042 million were completed and charged to current expenditure in violation of Section 22(1)(b of the FMA Act which prohibits this practice. Of this amount, $36.028 million relates to the Ministry of Education; and
(d) The practice of “cutting and holding” cheques at the end of the fiscal year to exhaust budgetary allocations, continued;
Next week, we will discuss procurement breaches as well as those relating to the accountability for fixed assets and inventories. We will then offer some suggestions which hopefully will minimise the extent to which the financial breaches and other irregularities are likely to occur in the future.
