On 10 December 2020, the Auditor General presented to the Speaker of the National Assembly his report on the audit of public accounts for the financial year ending 31 December 2019. The report was laid in the Assembly last Wednesday. Its completion has been delayed due to restrictions relating to the COVID-19 pandemic. The deadline for submission was 30 September 2020.
In today’s article, we highlight the key findings of the Auditor General’s 2019 report.
Statements and accounts presented to the Auditor General
The statements and accounts required to be submitted for audit and audit certification are the accounts of Administrations, Departments and Departments which include the appropriation accounts, and statements of receipt and payments; and the consolidated financial statements of the public accounts. The final set of statements includes:
(a) A statement of revenue and expenditure in the form of the End of Year Budget Outcome and Reconciliation Report;
(b) Financial reports of extra-budget funds;
(c) Issue and cancellation schedule of all loans;
(d) Government securities schedule;
(e) Statement of contingent liabilities;
(f) Deposit Funds financial reporting;
(e) the public debt schedule;
(f) The financial reports of any other accounts approved by the Minister for Finance; a
(i) Such other financial information as the Minister considers necessary for the fair presentation of the trans-financial acts and financial position of the State.
Statements (a) to (g) have been submitted to the Auditor General, with the exception of monies relating to out of budget funds for which no such funds have been created since the passing of the Financial Management and Accountability Act (FMA) 2003. In terms of (h) and (i), the following statements were submitted:
(a) Consolidated Fund Receipts and Payments;
(b) Consolidated Fund Expenditure compared to Expenditure Estimates;
(c) Expenditure in respect of those Services charged directly by law to the Consolidated Fund, otherwise known as Statutory Expenditure;
(d) Contingency Receipts and Payments;
(e) Government Assets and Liabilities;
(f) Budget Agency Allocation Accounts; a
(g) Budget Agency Receipts and Payments.
Certification of the statements and accounts
There are three main types of audit opinion usually issued by external auditors – unqualified; qualified; and disclaimer of opinion. An unqualified opinion is issued where there are no doubts based on uncertainties or disagreements of a material nature affecting the fair presentation of the financial statements. Where, in the auditor’s opinion, such an order affects the fair presentation, a qualified audit opinion is given. A disclaimer of opinion relates to doubts / disagreements of such a fundamental nature that the auditor states that he is unable to express an opinion on the related financial statements.
Of the thirteen sets of financial statements presented for audit, the Auditor General’s opinion relates to only eight statements. This is despite the fact that the Auditor General, in the opening paragraph of his opinion, referred to his audit of Guyana’s’ Public Accounts, which include the Consolidated Financial Statements, the Accounts of all Budget Agencies, the Reserves Accounts and the Receipts and Ministries, Departments and Districts’ charges. The statements for which an audit opinion has not been issued are:
(a) Consolidated Fund Receipts and Payments;
(b) Consolidated Fund Expenditure compared to Expenditure Estimates;
(c) Statutory Expenditure;
(d) Budget agency attribution accounts; a
(e) Receipts and payments from budget agencies.
As set out in our article of 14 September 2020, the International Standards on Auditing (ISAs) and International Standards of Supreme Audit Institutions (ISSAIs) require the Auditor General to express an opinion on all financial statements presented to him . Without such a view, legislators and the general public would be at a loss to find its general conclusions on the fair presentation of the statements and compliance with applicable laws, regulations, and cyclical directions. We raised this issue in relation to the audit of the 2018 public accounts and suggested that an explanation for departures from this practice for the last four years was required.
Of the eight sets of statements for which opinions were issued, only three were unconditional – Loan Issuing and Cancellation Schedule; Government Securities Timetable; and a Statement of Contingent Liabilities. A qualified opinion was issued on two sets of statements – the End of Year Budget Outcome and Reconciliation Report; and the Public Debt Schedule. On the other three sets of statements, the Auditor General denied his views on them. These are the Deposit Fund Financial Reports; Contingency Fund Receipts and Payments; and the Government’s Statement of Assets and Liabilities.
The rigorous nature of government accountability
Government accountability is far more rigorous and comprehensive than what exists in the private sector mainly because public service spending is funded from taxpayer funds. The national budget is very detailed on government programs and activities, and there are specific rules and procedures on how the funds should be spent, as outlined in the FMA Act, related Regulations and recurring directions. The Estimates are prepared on the basis of program, sub program and activity, and there are specific line expenditure items that cannot be varied without approval at the appropriate level.
In the private sector, accountability ends at the Annual General Meeting (AGM) of shareholders where the audited accounts are presented. Due to shareholder apathy, very few questions are raised at the AGM in relation to the accounts. However, government accountability does not end with the submission of the Auditor General’s report to the Legislature. That report must be examined by the Public Accounts Committee (PAC) and includes hearings where heads of budget agencies and other officials are required to provide explanations in relation to the Auditor General’s findings and recommendations. At the end of its hearings and discussions, the PAC then presents its report to the Assembly with its own findings and recommendations. The report is referred to Government, and a Treasury Memorandum is laid in the National Assembly setting out what action the Government intends to take or has taken in relation to the CAP’s recommendations.
All liabilities should be completed within 12 months at the end of the financial year to enable the Legislature to review the results of the previous financial year’s budget allocations to inform its consideration of the Estimates for the following year. The key questions that legislators tend to ask are: To what extent have the budget allocations for the previous year been spent in accordance with the wishes and intent of Parliament? Was the expenditure incurred with due regard to economy, efficiency and effectiveness? Were the funds managed with due regard to avoid waste and extravagance? Was there evidence of mismanagement, corruption and fraud in the use of public resources? Were the actual results and effects commensurate with those envisaged in the budget documents? What programs and activities need to be reviewed for their continuing relevance?
Unfortunately, the LLP, tasked with reviewing the public accounts, has not completed its audit and reporting for the years 2015, 2016, 2017, 2018. The last CAP report was in respect of 2012 -2014. Taking into account the recently submitted Auditor General’s 2019 report, the work of the CAP would have been five years in arrears. The implications of this undue delay are that some heads of budgetary agencies and other officials will not be in place by the time the CAP is implemented together to provide the necessary accountability. Other than that, it is very unlikely that citizens will be interested in what happened five years ago. In the circumstances, the CAP examination becomes an academic exercise. This is why the LLP must make every effort to update its work.
Need to improve the quality of government financial reporting
Although we may be a bit righteous in our sense that there has been an annual financial reporting audit of the public accounts for the last 28 years, compared to what existed in the years before 1992, there is a for us to reflect on the quality of such reports. reflected in the Auditor General’s certification of the public accounts. In the private sector, the smallest qualification in a company’s accounts can lead to a shake-up. Despite some of the shortcomings identified in the Auditor General’s report, particularly as they relate to actual certification of the public accounts, it is unacceptable for the public accounts to continue to apply year on year without evidence of any specific effort to secure improvements in public accountability.
The Government continues to use the cash basis of accounting to record, process and report financial transactions. While some may argue that such a financial accounting and reporting framework is simple and easy to operate, and it assists parliamentarians in monitoring and controlling spending; it is very incomplete and can lead to different types of abuse. These include: accelerating spending in the last quarter of the year to deplete budget allocations; rotate and / or manipulate the public procurement procedures; postpone activities to avoid over-run budget allocations; failing to return to the Treasury all unspent balances at the year-end; and withdrawing checks at the end of the year for payment of goods, services and carrying out work that is yet to receive value.
As far back as 2015 and earlier, the Government had decided to move away from using an accounting cash basis to one on an accruals basis consistent with international accounting and financial reporting standards. As such, it had agreed to the phased introduction of the Public Sector International Accounting Standards (IPSAS). However, apart from some training undertaken, little or no progress has been made.
To be continued –