On 23 December 2020, the Auditor General’s report on the audit of public accounts for the financial year ending 31 December 2019 was laid in the National Assembly. Since then, the media has been reporting on various aspects of the report, particularly where the report cites evidence of irregularities and mismanagement in the use of public resources. The Public Accounts Committee (PAC) must determine whether such irregularities and mismanagement have actually occurred, taking into account documentary evidence provided and explanations given by those responsible for managing the funds.
Unfortunately, the LLP is five years in arrears in auditing and reporting on the public accounts, although some work has been done for the years 2015 and 2016. Its last report was for the combined years 2012 to 2014 , which is an exercise in itself. is undesirable and should be terminated once the LLP updates its work. If the newly appointed LLP, expected to hold its first meeting today, decides to conduct its audit of these accounts sequentially, by the time it arrives in about 2019, many of the responsible officers may not be in place no longer providing the necessary accountability. This is why we suggested that the Committee take a two-sided approach involving the full committee examining the latest year (ie 2019), with a sub-committee looking at backlog years. The CAP also needs to ensure that its audit and reports on the 2019 public accounts are completed in time for consideration of the 2021. national budget. In order to do so, it may be desirable for the Committee to review the Auditor General’s report first to identify the issues that require special attention and the presence of the accounting officers concerned and other officials to provide the necessary explanations. That is, not all accounting officers should be asked to appear before the LLP. In this way, the Committee can more easily complete its audit and reports.
In last week’s article, we began a discussion of the 13 sets of financial statements containing the 2019 public accounts and the Auditor General’s certification of them. In today’s article, we continue that discussion.
Publish and Turn Off Schedule all Loans
The Schedule shows two loans totaling $ 399.706 million outstanding at December 31, 2019. However, it appears very incomplete as it did not include loans taken by the Guyana Government from international funding agencies on behalf of agencies State, with reciprocal borrowing agreements. with these agencies. For example, GUYSUCO’s 2016 audited accounts showed loans totaling $ 32.727 billion, most of which were based on borrowing agreements with the Government, particularly in relation to the Skeldon Estate Modernization Works. A similar comment is made of Guyana Power and Light which showed a long-term liability to the Government of $ 20.831 billion at the end of 2012. This observation is proved when one examines the public debt statement where these loans are also reflected . It is clear that the Loan Issuing and Cancellation Schedule is significantly overstated. Despite this, the Auditor General gave the Schedule an unqualified opinion on its completeness, accuracy and validity as well as its fair presentation.
Government Securities Timetable
The Government Securities Schedule shows four amounts totaling $ 16.585 billion, including the amount of $ 15.840 billion guaranteed on behalf of National Industrial and Commercial Investments Ltd. (NICIL) to assist with the restructuring of the Guyana Sugar Corporation. The latter amount appeared to be understated by $ 14.160 billion as the total amount of the guarantee was $ 30 billion. Of the amount drawn down, $ 1.760 billion was repaid. However, it is unclear whether it was reimbursed by NICIL or the Government. In his report, the Auditor General noted that, apart from the contract and summary of transactions, no other documentation for the payment and reimbursement had been submitted for audit. As a result, it was unable to determine who the recipients were and how the amounts were accounted for.
We had highlighted in our previous article on the subject that the Government guarantee of a NICIL loan was not reflected in the 2018 public accounts despite the fact that the agreement was entered into on 24 May 2018. However, that omission attracted no comment by the Auditor General in his 2018 report.
The Schedule also includes two guarantees totaling $ 244.797 million in respect of Guyana Telecommunications Corporation and Guyana Transport Services Ltd. However, these entities no longer exist. Since 2003 and perhaps earlier, the Auditor General has been recommending transfer of both amounts to the public debt. Given the time that would have elapsed, these loans may no longer be valid and should therefore be written off after a proper investigation. The Auditor General concluded that the accuracy and validity of the amounts shown in the Schedule could not be determined. However, his conclusion contradicts the unqualified opinion he has issued on the Schedule.
Statement of Contingent Liabilities
The Financial Management and Accountability Act defines contingent liability as ‘a future commitment, usually to the expenditure of public funds, which is dependent on a particular event or the occurrence of a particular circumstance’. International Accounting Standards No. 37 consider it a potential liability depending on whether some uncertain future event occurs; or an existing obligation but payment is not likely, or the amount cannot be measured reliably. An example is litigation where it is uncertain whether an act of tort was committed and when settlement is unlikely to be required.
The Statement of Contingent Liabilities submitted for audit is the same as the Government Guarantee Schedule. However, it is clear from the above that the two are not the same, although there may be some overlap. For example, there are several lawsuits before the courts whose outcome is pending. These should be regarded as contingent liabilities. However, the Auditor General issued an unqualified opinion on the Statement of Contingent Liabilities.
Consolidated Fund Overdraft
The Government Assets and Liabilities Statement showed that the Consolidated Fund was overdrawn by $ 124.288 billion as of December 31, 2019. At the end of 2017, the overdraft was $ 155.795 billion, a decrease of $ 31.507 billion. This was despite the Government reporting fiscal deficits of $ 27.286 billion and $ 29.925 billion for the years 2018 and 2019, in line with the Finance Minister’s End of Year reports. Taking this into account, the overdraft on the Consolidated Fund should have been $ 213.006 billion, a difference of $ 88.718 billion. In 1993, the Financial Sterilization Account was established in the Bank of Guyana where the profits of medium-term Treasury Bills (182- and 365 days) are deposited and payments made as the Bills mature. According to the notes to the 2019 public accounts:
The purpose of the Sterilization Account is to remove excess liquidity from the financial system. The vehicle for achieving this is for the Government to issue 182 and 365 day Treasury Bills. The cost to the Government is the interest charge on the T-bills purchased as they fall due. This is a statutory charge charged on the cost of internal interest. The Financial Sterilization Liability should be exactly offset by the Financial Sterilization Bank Account, creating a fully funded Accountability.
At 31 December 2017, the Sterilization Account reflected a positive balance of G $ 77.537 billion. However, at the end of 2018, the balance was reduced to $ 21.558 billion with a further decrease to $ 1.880 billion as of December 31, 2019. This significant decrease was primarily due to the proceeds from the issue of the 182- and 365- Bills Day treasury is deposited into the Consolidated Fund, in place of the Financial Sterilization Account.
The Auditor General rightly raised this issue as a concern. The Ministry of Finance argued that the Minister had the power under the FMA Act to seek finance through borrowing to reduce the overdraft on the Consolidated Fund and that the issue was more linked to bridging a funding gap and has no relationship to monetary policy . which falls under the remit of the Bank of Guyana. The Ministry referred to Section 61 which states that the proceeds of any such borrowing by the Government will be paid into the Consolidated Fund. However, the Ministry ignored the fact that, while Section 60 allows the Minister to approve the use of overdraft advances in an official bank account to meet shortfalls in operating the annual budget, all advances must be repaid. Such before the end of the financial year. Aside from the Ministry’s assertion, apart from the Ministry’s assertion, issuing medium-term Treasury Bills is more about the monetary policy of liquidity mapping, and not funding budget deficits, hence the rationale for creating the Account Financial Sterilization. .
In our article of 9 December 2018, we noted that the overdraft on the Consolidated Fund was estimated to be approximately $ 210 billion at the end of 2019. The then Minister for Finance took us to task and questioned the source of our information. He said that the Bank of Guyana advised that the overdraft was $ 62.2 billion as of December 7, 2018. We responded in our article the following week by referring to the audited public accounts for the years 1992 to 2017; the analysis we carried out (including table presentation as well as graph); and the Minister’s signature on the Statement of Assets and Liabilities as of December 31, 2017 attest to the overdraft on the Consolidated Fund of $ 155.795 billion. We also emphasized that the Bank’s advice in relation to the net balance of Government deposits held by the Bank, which included the balance includes the amounts held in the Financial Sterilization Account as well as other non-government accounts part of the Consolidated Fund.
Since then, no further word has been received from the Ministry regarding the overdraft on the Consolidated Fund. As noted above, the balance on the Financial Sterilization Account at 31 December 2018 was reduced to $ 21.558 billion, with a further decrease to $ 1.880 billion at 31 December 2019 due to the decision to pay the Consolidated Fund the proceeds of issuing season Treasury Bills medium.
Given the above, our concern is that while the notes to the public accounts specifically state that the accounting policy for medium-term Treasury Bills is for the proceeds to be deposited into the Financial Sterilization Account in order to create ‘fully funded liability’; such deposits were credited to the Consolidated Fund in contravention of that policy. This raises the important question of whether this action was not an attempt to hide the true extent of the overdraft on the Consolidated Fund.
We maintain our previously stated position that the overdraft on the Consolidated Fund was $ 155.795 billion at the end of 2017. Given the Auditor General’s reports for the years 2018 and 2019, that overdraft was estimated to increase to $ 213.006 billion at the end of 2019. When considering the budgeted fiscal deficit for 2020, the overdraft on the Consolidated Fund as estimated at 31 December 2020 will be $ 288.906 billion, as shown below:
$ M.
Overdraft balance at 1 January 2018 (per audited public accounts) 155,795
Add: Too much spending over revenue
2018: $ 254.783 billion minus $ 227.497 billion 27,286
2019: $ 282.456 billion minus $ 252.531 billion 29,925
2020: budgeted fiscal deficit ($ 329.5 billion – $ 253.7 billion) 75.900
Estimated overdraft balance at 31 December 2020 288,906