Business Page November 25th, 2001

Financial Lawlessness

Just suppose

Just suppose for a moment that you as a shareholder of DDL or Banks DIH were presented with a report from the auditors advising you that:

  • The Finance Department has not complied with the company's articles and by-laws requiring them to submit to you for audit the company's statements of assets and liabilities i.e. what the company owns and what it owes;
  • The statements of outstanding loans and advances made from the company's main funds and the balances held on deposit as well as outstanding advances are so inadequate that he is unable to say whether they are accurate;
  • Departmental financial reports are presented to the auditor late or not at all;
  • That monies sent to the regions are not being properly accounted for;
  • That many of the systems which have been established to protect the integrity and reliability of the records, to prevent fraud, to provide for proper accounting and accountability and generally to safeguard the assets of the company have been systematically flouted;
  • That there is widespread evidence that breaches of the system if not outright fraud is evident year after year;
  • That the number one man in the organisation keeps walking around asking for (further) proof while his number two states on public television that he has not read the audit reports months and months after they have been submitted to the company;
  • The management of the company does not even know how much money it has in close to one thousand bank accounts;
  • That funds due to the company are being collected but not paid into the company;
  • That the directors spend these illegally held funds without any reference to the relevant authority.
  • That poor financial management of the company is causing the shareholders to lose billions of dollars annually;
  • That you have been reporting these problems year after year with no visible attempt by the company to address them.

Suppose further that the directors now come to you and tell you that they need more money to run the company and pay themselves higher salaries and exorbitant perks which cost the company millions of dollars in scarce funds.

Speculation and reality

The only thing that is speculative about the above is that it refers to two of our better- known private sector establishments. The rest is factual and is drawn from the past four years Reports of the Auditor General on the accounts of the Ministries/Departments/Regions. It makes sad reading and is a reflection not only of the Government but of Parliament which imposes burdensome taxes without any effective attempts to ensure proper accountability in this country.

PNC-Reform Parliamentarian Stanley Ming who brings to the National Assembly a private sector paradigm which recognises that income has to be earned and not legislated as in the case of taxes, is so upset about this lawless state of affairs that he is threatening to withhold the payment of taxes and to resign from Parliament if there is no significant improvement. These bold statements reflect the frustration of those who pay their taxes and feel completely powerless in how their money is spent and accounted for. Parliament must not forget the dictum "Taxation without representation is tyranny" or fail to recognise the immense frustration in the wider society about the increasing evidence of mismanagement, corruption and absence of meaningful accountability.

Public Accounts Committee

It is indeed unfortunate that the Public Accounts Committee which from all appearances is a very private and select group from which even other Members of Parliament, the press and the public are excluded, is only now considering the Auditor General's Report for 1999. Since their own report on the Auditor General's Report may not be issued until in the new year, their efforts will have come far too late to make any serious impact. More contracts would have been split to circumvent tender procedures while the wastage, inefficiencies and illegalities would have continued.

In October 2000, the Public Accounts Committee submitted to the Speaker and Members of the National Assembly their Report for the years 1995-1998. At that time the report could be of no than academic interest although it highlighted some of the more egregious matters raised in the Auditor General's Report. The explanation offered by the PAC for the late consideration of the Reports by the Auditor General were as follows: The delay in having the Committee constituted following the resignation of the previous Chairman; the Public Service strike in 1999; and the staffing difficulties at the National Assembly's Secretariat.

It is hard to accept this explanation as anything more than weak excuses. These reports were submitted to the Minister of Finance and laid before the National Assembly in reasonably good time though not within the statutory deadline. Our archaic rules do not require that the report by the PAC be discussed in Parliament but do impose on the Government a duty to prepare a response in the form of a Treasury Memorandum outlining the action it has taken or proposes to take on the issues contained in the Auditor General's Report. No such Memorandum has ever been issued on any report for the last eight years.

Financial Mismanagement

Today we look at some serious evidence of financial and cash management at the national level.

A significant number of bank accounts currently in use, as well as non-operational accounts were allowed to be overdrawn by large amounts in contravention of Section 22 of the Financial Administration & Audit Act. (FAA) These resulted in substantial interest charges being incurred as in the case of the Guyana High Commission London account which now has a liability of Sterling 200,212 pounds and outstanding interest of Sterling 1,496,053 pounds. As long ago as 1996, the Auditor General found it necessary to point out that 'interest charges are several times the actual overdrafts which is an indicator of the length of time the overdrafts had been in existence" He cautioned that "unless urgent action is taken to liquidate the overdrafts, the indebtedness to the bank would continue to increase significantly"

At December 31, 1999, the Consolidated Fund was overdrawn by $57.110 billion, up from $38.229 billion three years earlier. On the other hand, the sum total of all bank accounts (including the overdrawn balance on the Consolidated Fund but excluding the balances on the bank accounts special projects) reflected a positive balance of $14.101billion. This situation has been highlighted each year by the Auditor General but no action has been taken to regularise this situation.

In 1996, the Auditor General reported that the eleven ministries, thirteen departments and ten regions had a combined total of seven hundred and thirty-three bank accounts. He recommended the closure of all accounts with positive balances and their transfer to the Consolidated Fund and the opening of new bank accounts to avoid contamination with the older accounts. However, the opening of new accounts has actually led to an increase, not decrease in the number of bank accounts in operation.

The State continues to provide funding annually to several public entities even though they do not comply with their statutory duty to submit audited financial statements. This is particularly true of the town councils across the country in complete defiance of the Municipal and District Councils Act, Chapter 28:01 and despite the fact that there are two ministers in the Ministry of Local Government.

The Contingencies Fund continues to be abused despite repeated negative comments on this practice. S25 of the FAA Act stipulates that this Fund should only be used if the proposed expenditure is (a) unforeseen (b) urgent (c) no other provision exists and (d) the expenditure cannot be postponed without injury to the public interest until adequate provision is made by the National Assembly. Proceeds from the Guyana Lotteries are not being paid over to the Consolidated Fund but are kept in a "special bank account" held at the Central Bank and used to meet public expenditure without parliamentary approval. The same is true of the Guyana Defence Force, the Commander-in-Chief of which is the President and which 'continues to harbour the belief that the Financial Regulations should not be applicable to it, especially as they relate to procurement and contracts for works. The Guyana Forestry Commission is in the same league and has used funds improperly held to purchase a vehicle for use by a Minister of the Government.

...To be continued next week.