Sunday, September 7, 2008

Auditor General’s Report - Conclusion

Business Page
Auditor General’s Report - Conclusion
Posted By Christopher Ram.
Stabroek News. On September 7, 2008 @ 5:14 am In Features, Sunday | No Comments

Today we conclude our 3-part review of the Auditor General’s report for 2006. I apologise for presenting a rather disturbing picture of the financial management of the country that stands in stark contrast to the oft-repeated boast of financial probity and accountability. What makes matters worse is that measured by tax to GDP, Guyanese pay considerably more taxes than any other country in Caricom and these are among the highest in the world. And for VAT alone, Guyana stands out among the Caricom countries with the share of GDP that is collected in the form of VAT being three times that of Trinidad and Tobago, a country which has had VAT for over fifteen years. This is no doubt, in part due to the required rate of VAT to meet the revenue-neutrality commitment by the government being considerably more than it should be. The government knows this and has been reminded of it on a number of occasions but has simply ignored it. After all, it considers the press as financially illiterate so what does it think of the rest of us Guyanese?

It is almost pointless identifying all the weaknesses in the report itself, in the scope that it appears to consider adequate to make a proper conclusion, and in its findings. We note that the Office of the Prime Minister which spent one hundred million dollars in 2006 does not warrant any mention in the report, but what about the Privatisation Unit/NICIL as the Ministry of Finance chooses to call it, and which does not account for hundreds of millions of dollars it collects and spends unlawfully year after year. There is not a single mention of this fundamental breach of the constitution that ranks and rankles with the infamous Lotto Funds.

Yet in paragraph 325 the report finds space and time to commend the GDF for achieving a Nil balance on its salaries account for four of twelve months in 2006! That a failure rate of eight out of twelve in respect of this most elementary principle of book-keeping is regarded by the Auditor General as “commendable” is an indication that the bar set by the report for accountability is so low that it can cause even the walker to stump her/his toe!

The report indicates a poor understanding of the laws and operation of the Guyana Revenue Authority by its failure to address some real and fundamental issues, and even when it does present some findings it is unable to put a meaningful interpretation on them. Take for example the section of the report dealing with Customs and Trade Administration. Eleven of the thirteen paragraphs deal with “Prior year matters which have not been fully resolved,” with the adverb seeming overly generous. The report appears oblivious to the several scams that take place in that division costing the state billions of dollars in funds which could have gone to reduce the prohibitive VAT and PAYE borne mainly by low-income taxpayers.

The story is not too different with the Internal Revenue Department, which according to the report has not taken steps to have all delinquent self-employed persons comply with the Income Tax Act, one of the reasons given for the merger of the tax-collecting agencies in 2000. The report tells us that there are 22,682 persons who have been identified by the GRA as self-employed, but it does not bother to tell us how many filed returns. There is no reason why the GRA with the technical, IT and legal professionals, and the enforcement and penal provisions at its disposal could not achieve a 75% filing performance. But let us assume a 50% rate of filing, the average tax collection per person is a mere $7,500 per month per taxpayer or the equivalent of about $50,000 per month of profit! Is it not time that the GRA prosecute those accountants and tax consultants who aid and abet the criminal act of tax evasion? I do not believe that any serious Audit Office and GRA would find this credible, but I am surprised that the report does not highlight it and give any indication of the steps proposed to deal with what is obviously a scandalous situation.

The QAII debacle and the preferential treatment of New GPC should have alerted the Auditor General to the need and the statutory requirement for a proper audit of the tax concessions given under various acts. The Auditor General would know that in the absence of Goods Received Records he could have applied alternative methods of testing the purchase of these items with a value in excess of $600 million, including obtaining from the supplier, the New GPC, copies of their invoices and delivery records. Failure to do this reflects very poorly on him.

The report ignores this and does not deal with the fact that the system of tax refunds is a joke and an injustice to the taxpaying public. And should the report have noted that there has not been a Board of Review for several years or that the last Chairman, Mr Brindley Benn, is not known to have any expertise in this crucial area? One only has to read some of the decisions coming out of the Board of Review of other Caribbean countries to recognize the calibre of persons who should be appointed to such a body.

If one is serious about the finances of the country the two entities charged with managing and accounting for these funds – the Accountant General’s Office and the Ministry of Finance cannot be allowed to be the featured stars in this tragic-comedy of errors and incompetence. Many of the discrepancies highlighted (and not highlighted such as the requirement to submit to the National Assembly a mid-year report by August 30 each year), in the report can be traced directly to one or the other of these two entities. Only a sprinkling of examples is required to show the scale of the problem: no financial statements produced for audit in respect of the State Planning Commission for 1992-2006, $6.513 billion shown as advances from the Dependants Pension Fund Deposit Fund outstanding at December 31, 2006 could not be substantiated and the old Consolidated Fund bank account NO 400 not reconciled since 1988. And what has been the solution by the new breed of financial literati? Open new accounts and do not bother to reconcile those either. So you now have an untold number of bank accounts, most of which are not reconciled and 108 accounts which are listed as inactive.
Of the $16.5 billion available to Ministry of Finance, only $3.6 billion was spent, which reflects either incredible money-management skills or a hopelessly flawed budget process, which prior to his elevation as Finance Minister was under the control of Dr Ashni Singh as Budget Director. A loan of $2.617 billion from the International Development Association was placed into an account in December 2003 for “investments in human capital under the health and education sectors; (b) strengthening of public institutions and improvement of governance (c) expansion and improvement in the provision of basic services under the water sector; and (d) broad-based job-generating economic growth.” Laudable projects, all except that there have been no transactions on this account since and the country must surely be paying interest on that loan. This ignores the even greater price in the loss of benefits that would have been generated by implementation of the initiatives contemplated when the loan agreement was signed.

Not only are all the issues raised under the section dealing with the National Procurement and Tender Administration (paragraphs 108-122) and that dealing with the Integrated Fiscal and Management Accounting System (IFMAS) matters coming forward from previous years, but these are matters for which the Minister of Finance is responsible. Not only has the constitutional body, the National Procurement Commission, not been set up, but as we see from paragraph 116 of the report, the Minister of Finance did not insist that the Chairman of the National Board submit the annual report required by the Procurement Act on the effectiveness of the procurement process!

The AG’s opinion
Despite all the weaknesses, omissions and failures, the opinion expressed on the report is a mixed opinion involving one in which the Auditor General (ag) claims that “subject to” the massive errors and omissions some of the statements present fairly the financial transactions and positions on some of the accounts and statements, but in relation to others he could not form an opinion.
Among the former is that relating to the Receipts and Payments of the Consolidated Fund and Receipts and Payments of the Contingencies Fund. As an auditor who first entered a profession which I have practised in several jurisdictions since September 1974, I simply cannot see how a “subject to” opinion can be issued where there are such fundamental breaches of the constitution and other laws and where billions of dollars are not properly accounted for. These would include funds collected by the Georgetown Public Hospital Corporation, foreign missions, royalties, privatization proceeds and Lotto Funds.

And imagine that the government which has retained VAT funds from the consumers is unable to reconcile the majority of bank accounts and that the balance of $8.774 billion “represents the best available estimate of the cash position of the Government as at December 31, 2006.” Should this amount be $50 billion or $50? The answer is that no one knows for sure. The unfortunate remarks by our President referred to in the first two weeks of this analysis send the message that knowing how much money the country has is unimportant. The absence of control over the bank accounts appears to substantiate that belief.

Where do we go from here?
No useful purpose would be served by listing the many unacceptable conditions cited in the report. Suffice it to say that this report should be a wake-up call to all Guyanese and more particularly the parliamentary opposition and the government of the need to address an untenable situation. We keep hearing that scarcity of resources constrains the effectiveness of financial oversight, and we are now painfully aware of the persistent failures of the Accountant General’s office, the Audit Office and the Ministry of Finance. As previously mentioned these are the entities tasked with the responsibility of managing, accounting for and ensuring that the nation’s resources are adequately protected. Immediate reforms in the way they do business (and it is business) are needed. The first statement of intent would be the allocation of resources to enhance the capability of the entities. Despite all the cries of scarce resources, this report highlights the abuse and misuse of resources and the critical need for strengthening the capability of the three entities. If accountability is job number one, then the President as the Chief Accountable Officer must ensure that the Accountant General, the Auditor General and the Minister of Finance are given the tools needed to discharge their constitutional and statutory responsibilities.

The system requires the ministries and other government entities to respond formally by way of a Treasury Memorandum to the report of the Public Accounts Committee following its own review of each Auditor General’s report. When after several years of non-compliance by the PNC and itself, the government published the first such memorandum in 2006 there was much crowing, so it is troubling that the government has failed to respond to the last report done by the PAC. Taxpayers and citizens have a right to know the proposed measures to address the deficiencies in accounting, accountability and governance. Having done a mere superficial review of the report, as a taxpayer I am appalled at the way in which my taxes are spent. I would willingly pay anyone for advice on the legal recourse I have as a citizen and it is truly time for the country to wake up from the party which it financed to the tune of hundreds of millions of dollars and get serious.

Faced with this scandalous financial situation, the Public Accounts Committee has gone into recess, but it too needs to recognize that it cannot be business as usual. It needs to get the technical expertise to assist it in its work, and it needs a full-time secretariat in order to exercise its constitutional authority. It should call the Auditor General to discuss his report, the capability of his department and the glaring shortcomings that have surfaced as a result of his continued inability to carry out his constitutional mandate. Business Page can hardly wait to see whether the situation provokes as visceral a response by the President to correct the situation as was his reaction to perceived criticism of the report. It will be a true barometer of the seriousness of his administration about accountability.

Article printed from Stabroek News:

URL to article:

No comments: