Part 1
The Auditor General completed his audit of the Government’s accounts for the year ended 31 December 2017. He presented his report on 28 September 2018 to the Speaker of the National Assembly who laid in the Assembly on 18 October 2018. Since then, the media has been highlighting various aspects of the report.
The Public Accounts in Perspective
Article 223 of the Constitution defines the public accounts to include the accounts of: (i) all central and local government bodies and entities; (ii) all bodies and entities in which the State has a controlling interest; and (iii) all projects funded by way of loans and grants by a foreign State or organisation. Central and local government bodies include Ministries, Departments and Regions as well as the municipalities, the Neighbourhood Democratic Councils (NDCs), and district and village councils. On the other hand, entities in which controlling interest vests in the State include public corporations, government companies and statutory bodies, while foreign-funded projects are those of the World Bank and Inter-American Development Bank, among others.
The Auditor General is in effect the external auditor of the entire public sector. Given the enormity of his mandate, there is provision for the engagement of Chartered Accountants in public practice to audit on his behalf and under his supervision, any of the accounts referred to above. It has been the practice for the audits of public enterprises to be contracted out to Chartered Accountants because of their greater expertise in commercial-type audits.
The report for 2017, as in previous reports, covers Ministries, Departments and Regions only since the other entities – the six municipalities, the 65 Neighbourhood Democratic Councils, the 215 Amerindian Village Councils as well as the several foreign-funded projects – are required to have separate financial reporting and audit. This is because these entities are governed by separate legislation, such as the Public Corporations Act, the Companies Act, Municipal and District Councils’ Act, the Local Government Act and the Amerindian Act. Statutory bodies, such as the Bank of Guyana and the Guyana Revenue Authority, also have their own legislation. Foreign-funded projects are, however, the subject of separate agreements with the Government.
Given that the mandate of the Auditor General relates to the public accounts in their entirety, in principle, the audited accounts of these other entities should also be laid in the Assembly and referred to the Public Accounts Committee (PAC) for detailed examination. However, this is not being done. That apart, most of these entities are significantly in arrears in terms of financial reporting and audit, and some do not have audited financial statements since they were established. These include the NDCs and the Amerindian Village Councils. In the circumstances, one must not view the Auditor General’s report as having fully satisfied constitutional and legislative requirements relating to public accountability. This is an issue that should be discussed and resolved by the PAC.
The public accounts, as contained in the Auditor General’s report, comprises the consolidated financial statements of the Government and the accounts of Ministries Departments and Regions. The report is entitled “Report of the Auditor General on the Public Accounts of Guyana and the Accounts of Ministries/ Departments/Regions…” This title was framed during the finalization of the 1992 report because at that time the public accounts were considered the consolidated financial statements of the Government only. Given the constitutional amendment of 2001, it would be more appropriate for the report to be captioned “Report of the Auditor General on the Consolidated Financial Statements of the Government and the Accounts of Ministries, Departments and Regions…” One hopes that this amendment will be reflected in the Auditor General’s 2018 report.
Audit Opinion
The culmination of the work of an external auditor is the expression of an opinion on the financial statements of the organisation in terms of their fair presentation and compliance with applicable laws, regulations and circular instructions as well as adherence to any contractual obligations. The Auditor General is the external auditor of the Government. His 2017 report is contained in two volumes and covers 734 pages. However, the actual report is of 444 pages in length, while the remaining pages comprise the audited accounts. The report begins with the Auditor General’s opinion of the financial statements, followed by an executive summary, then the detailed findings and recommendations.
Of the ten sets of financial statements comprising the consolidated accounts, the Auditor General issued an unqualified opinion or a ‘clean bill of health’ on only two statements – Receipts and Payments of the Contingencies Fund; and Schedule of Issuance and Extinguishment of all Loans. He has also disclaimed his opinion on two other statements – the Deposits Fund; and the Statement of Current Assets and Liabilities of the Government – “because of the significance of the comments as contained in the relevant sections of my report” and his inability “to obtain sufficient appropriate audit evidence to provide a basis for an opinion on these statements.” For all the other statements and accounts, that is, the remaining six consolidated financial statements and the more than 200 capital and current expenditure appropriation accounts and revenue accounts of Ministries/Departments/Regions, the Auditor General has qualified his opinion because of the “effects of the matters which might have been shown to be necessary as a result of the observations contained in the relevant sections of my report”.
A review of the findings contained in these sections, however, suggests that not all of these accounts deserve to be qualified. For example, there were no adverse findings relating to the End of Year Outcome and Reconciliation Report; Statement of Expenditure Compared with the Estimates of Expenditure (both capital and current); and Expenditure in Respect of those Services which are a Direct Charge on the Consolidated Fund. The same could be said of several of the appropriation and revenue accounts of Ministries/Departments/Regions. This is an area in which the Audit Office needs to pay particular attention to when drafting its audit opinion.
Although the findings of the report were discussed with the Heads of Budget Agency, in keeping with normal practice the proposed opinions on the individual accounts should be discussed with them to enable them to appreciate the basis upon which the opinions were arrived at, and more importantly, to give Heads of Budget Agencies an opportunity before the report is issued to rectify any deficiency/deficiencies giving rise to any qualified opinion or a disclaimer of opinion as the case may be. One can appreciate the difficulty to capture in a sentence or two the audit opinion covering the more than 200 accounts with wide variability in terms of their fair presentation. However, a sincere effort needs to be made if the Audit Office is to ensure that its work is in full compliance with the International Standards on Auditing and other related standards.
One suggestion is to group the appropriation and revenue accounts into three categories depending on the results of the audit: those whose findings do not affect their fair presentation (unqualified opinion); those whose findings materially affect their fair presentation (qualified opinion); and those whose findings are so fundamental that an opinion as to their fair presentation cannot be given (disclaimer of opinion). This approach will facilitate the crafting of a more realistic opinion on the accounts. It will also represent an improvement compared with the past, including during my tenure.
Executive Summary
The following are the highlights of the report, as gleaned from this section and summarized in his own words by this writer:
Contract awards
(a) Overpayments totalling $71.738 million were made on 79 contracts based on measured works at the time of the audit, of which amounts totalling $50.461 million remained unrecovered at the time of reporting;
(b) There were breaches in the Procurement Act in relation to the award of contracts in Regions 5 and 6 where restricted tendering was used instead of adherence to competitive bidding procedures;
(c) A Region 10 contractor received an advance payment of $39 million. However, at the time of reporting, no works had commenced, and the site was abandoned. The same contractor received another advance payment from the Ministry of Public Infrastructure but no “significant” work had commenced; and
(d) There has been a continuation of the practice of drawing cheques at the end of the year to pay contractors although the works had not been completed. This is a breach of the Fiscal Management and Accountability Act which requires all unutilised balances to be returned to the Treasury.
Unpresented Payment Vouchers
A total of 599 payment vouchers valued $528.375 million were not presented for audit, of which 387 valued $426.643 million relates to Region 1 and the Ministry of Indigenous Peoples’ Affairs;
Cheque Order Payments
Several Ministries, Departments and Regions failed to clear cheque order payments (i.e. payments in advance of the receipt of goods/services) within the stipulated time-frame through the submission of bills and receipt in support of the related expenditure. At the time of reporting, a total of 2,140 cheque orders valued at $1.710 billion remained outstanding, 1,415 of which valued at $1.060 billion relates to prior periods. In the circumstances, it could not be determined whether value was received in respect of these payments.
Drugs and Medical Supplies
The Ministry of Public Health acquired drugs and medical supplies for the ten Regions and received amounts totalling $1.789 billion. Of this sum, amounts totalling $1.747 billion were shown as having been expended. Although there was evidence that the items were received by the Regions, the related costs were not reflected in the documentation. As a result, it could not be determined whether the Regions received full value for the amounts expended. The Audit Office noted that three amounts totalling $144.098 million were refunded to the Treasury in January and March 2018. These amounts should have been refunded to the Treasury before the close of the year.
Staffing shortages in the Regions
There were 323 vacancies that were advertised for the Regions, including key positions such as Regional Health Officer, Regional Education Officer, Chief Accountants, Accountants, Senior Personnel Officers and Procurement Officers. The Audit Office was of the view that the vacancies would have an adverse effect on the operations of the Regions and in particular the level of control needed to ensure adequate checks and balances.
Forensic Audits
(a) The sum of $500 million was shown as having been expended on D”urban Park rehabilitation project. This amount was used to make payments to Homestretch Development Inc. (HDI), a private company that was established to oversee the works. However, the only documents attached to the payment vouchers were the list of HDI’s creditors and proposed payment allocation;
(b) There were eight contracts awarded by Region 6 Tender Board where the bills of quantities and the contract sums were identical to the Engineer’s Estimate. Four of these were awarded on the same day. These observations raise doubts as to whether there has been a circumvention of the tendering process;
(c) The Ministry of Communities received from the Ministry of Finance the sum of $400 million to pay contractors for sanitation services rendered to the Georgetown City Council. However, details of the payments, including the exact periods and description/particulars of services, and its related costs, were not provided. Instead, a summary by contractor and nature of indebtedness was attached to the payment vouchers; and
(d) In relation to the supply of dietary items for the Kato Breakfast School in Region 8, a total of 60 payments totalling $33.663M were made to a supplier. However, prices for items purchased were higher than those of similar items purchased by the Region from other suppliers.
Guyana Revenue Authority
Only 17 percent, or 18,351 of the 105,522 self-employed persons, filed Income Tax Returns. The total amount received was a mere $4.9 million.
Non-Delivery of Items
At the time of reporting, items valued $437.033M for which payments were made, were not delivered. Of this amount, $193.368 million relates to the acquisition of: (i) drugs and medical supplies, three ambulances, one canter truck and equipment for the Ministry of Public Health; and (ii) a multi-purpose fire rescue boat, an automated finger-print identification system, furniture and equipment for the Ministry of Public Security.
Employment Costs
The actual staffing of nine Regions exceeded their approved allocations by 814. However, actual expenditure was $258.499 million less than the amount allocated.
Shortfall in Capital Expenditure
There was a shortfall of $9.202 billion in capital expenditure, attributable mainly to the low execution rate of major foreign-funded projects.
Status of Implementation of Recommendations
A total of 602 recommendations were made in 2016 of which 178 or 30 percent were partially implemented, while 174 or 28 percent were not implemented. This means that after one year, only 42 percent of the recommendations were fully implemented.
Part 2
Last week, we began a discussion of the 2017 Auditor General’s report. So far, we examined the overall opinion given on the country’s accounts and felt that greater care needs to be exercised to ensure that such opinion is supported by adequate audit evidence. We also summarised the key findings as reflected in the executive summary of the report.
Judging from the almost daily media coverage of the report since it was made public, the Executive Summary did not appear to provide a complete representation of the key findings contained in the report. An executive summary should be concise and written for the benefit of officials and other stakeholders who may not initially have the time to go through an entire report, or who may have an interest in only certain aspects of the report. Having identified their areas of interest, these persons may at a later stage go through the detailed aspects of the report covering the areas of interest.
Today, we continue an examination of the 2017 Auditor General report by focusing on the twelve consolidated financial statements of the Government.
End of Year Budget Outcome and Reconciliation Report (Revenue)
Total current revenue collections amounted to $195.060 billion, exceeding projections by 4.86 percent. However, there was a shortfall in value added tax collections by $2.757 billion or 6.1 percent. Shown below are the revenue collections in the last three years:
Description 2017 2016 2015
$M $M $M
Customs & trade taxes 18,890 16,382 13,156
Internal revenue 76,514 68,111 61,044
Value added tax 42,423 36,268 35,374
Excise taxes 33,459 31,083 33,330
Dividends & transfers 14,251 14,276 12,392
Others 9,523 11,411 7,736
TOTAL 195,060 177,531 163,032
In terms of capital revenue, estimated collections amounted to $31.408 billion while the actual amount collected was $28.412 billion. This was due mainly to shortfalls in the anticipated disbursements of loans and grants, mainly from the European Union and the Caribbean Development Bank.
End of Year Budget Outcome and Reconciliation Report (Expenditure)
Current expenditure by Ministries/Departments/Regions amounted to $188.202 billion, compared with the revised budgetary allocations of $193.365 billion. Therefore, there was a budget utilization of 97.3 percent.
In relation to capital expenditure, the amount budgeted was $67.820 billion, inclusive of supplementary estimates totalling $11.062 billion. Actual expenditure was $58.618 billion, giving a shortfall of $9.203 billion or 13.57 percent. The Ministries of Public Infrastructure and the Ministry of Education recorded shortfalls of $5.665 billion (16 percent) and $1.429 billion (35 per cent) respectively. This performance nevertheless represented an improvement over 2016 where the shortfall was $13.691 billion or 22.70 percent.
Taking into account current revenue collections of $195.060 billion and current expenditure of $188.202 billion, the Government has recorded a surplus on operations of $6.858 billion, compared with a surplus of $2.574 billion in 2016. The Auditor General’s report, however, indicated a net deficit of $24.268 billion, due to the inclusion of capital revenue and capital expenditure. Under normal accounting rules, these do not feature in the computation of the results of operations.
Receipts and Payments of the Consolidated Fund
The Consolidated Fund was overdrawn by $132.877 billion at the beginning of the year. Total receipts for 2017 amounted to $223.472 billion while payments totalled $246.819 billion. This has resulted in an increase in overdraft on the Consolidated Fund to $156.225 billion as at end of 2017, as summarized below: $M
Opening balance on the Consolidated Fund – Old Consolidated Fund (46,776)
– New Consolidated Fund (86,101)
(132,877)
Add: current receipts 195,060
capital receipts 28,412
223,472
Less: payments for current expenditure (188,202)
Payments for capital expenditure (58,618)
(23,348)
Closing balance on the Consolidated Fund (156,225)
======
[Note: The Statement of Current Assets and Liabilities showed a closing overdraft of $155.796 billion, a difference of $429 million.]
The old Consolidated Fund was closed on 31 December 2003 because it was heavily overdrawn and had not been reconciled for years. Based on a recommendation that I had made during my tenure as Auditor General, a new account was opened as of January 2004 to start from a clean position and to avoid contamination with the old account. However, no attempt was made over the years to liquidate the overdraft.
The accumulated overdraft on both accounts was due mainly to expenditure exceeding revenue over the years, as can be noted from the results for the last five years:
2017 2016 2015 2014 2013
$M $M $M $M $M
Total expenditure 246,820 221,604 186,910 188,266 175,845
Total revenue 223,472 197,209 178,908 163,313 166,711
Deficiency 23,347 24,395 8,002 24,953 9,134
This pattern of deficit budgeting and expenditure incurrence is a distressing one, and it is long overdue that we move towards a system of balanced budgeting. Imagine what would have happened over the years had there not been debt scheduling and write-offs, and other forms of financial assistance from donor agencies. In short, we have been living beyond our means by consistently incurring expenditure beyond our earning capacity.
Expenditure from the Consolidated Fund as compared with the Estimates of
Expenditure
There is considerable overlap between this statement and End of Year Budget Outcome and Reconciliation Report which has been dealt with already.
Expenditure in respect of those services which by law are directly charged upon the
Consolidated Fund
Also described as Statutory Expenditure, this represents expenditures that are not voted for by the National Assembly since by constitution they are a direct charge on the Consolidated Fund. These include emoluments of holders of constitutional offices, the servicing of the public debt, and the payment of State pensions. The following is a breakdown of the expenditure of $19.199 billion in 2017, compared with $16.161 billion incurred in 2016:
Particulars 2017 2016
$’000 $’000
Emoluments of holders of constitutional offices 40,169 49,915
Pensions & gratuities 4,330,677 3,900,072
Servicing of the Public Debt – Principal 8,656,835 6,745,719
Servicing of the Public Debt – Interest 6,171,489 5,465,696
TOTAL 19,199,170 16,161,402
Receipts and Payments of the Contingencies Fund
The Contingencies Fund is used to make payments to meet expenditure that is unforeseen and urgent expenditure not previously budgeted for and which cannot be postponed without jeopardizing the public interest. When this happens, a Supplementary Estimate is tabled in the Assembly to authorize the expenditure and to replenish the Fund.
According to the financial statements, there were no transactions for the period under review.
Schedule of Issuance and Extinguishment of All loans
By Section 64(1) of the Fiscal Management and Accountability (FMA) Act, the Government may lend public moneys to any public entity or to any individual who is a citizen of Guyana. As at 31 December 2017, two entities were shown as being indebted to the Government in the amount of $466.308 million. These are Guyana National Printers – $100 million; and Ogle Airport Inc. – $366.308 million.
The schedule, however, appears incomplete. For example, the construction of the Skeldon Estate Factory was financed by loans to the Government of Guyana from the Exim Bank of China and the Caribbean Development Bank (CDB). These loans were transferred to the Guyana Sugar Corporation (GUYSUCO) based on on-lending agreements. The Government also provided a direct loan to GUYSUCO for the construction of the Factory. In addition, the CDB financed some of the corporation’s drainage and irrigation works under the same on-lending arrangements. GUYSUCO’s total indebtedness to the Government as at the end of 2016 was $19.930 billion.
Similarly, as of end of 2012, the Guyana Power and Light was indebted to the Government in the amount of $20.831 billion in respect of loans for infrastructure development – $5.940 billion; PetroCaribe loan – $13.899 billion; and on-lending agreements based on loans from the Inter-American Development Bank. There may be other entities that are also indebted to the Government.
Financial Report of the Deposits Fund
By Section 42 of the FMA Act the Minister may establish one or more Deposit Funds into which public moneys are paid pending repayment or payment for the purpose for which the moneys were deposited. The following is a summary of the report presented for audit:
Deposits
$’000
Dependents’ Pension Fund 1,230,560
Sugar Industry Welfare Funds 1,107,840
Miscellaneous 3,804,721
TOTAL 6,143,121
Advances
Guyana Gold Board 8,650,148
Statutory bodies and other entities 1,554,456
Gratuity 1,281,183
Others 2,273,665
TOTAL 13,759,452
Several of these balances remained static and have been coming forward for years. Because of a lack of documentation in support of the above amounts, the Auditor General was unable to express an opinion on the above report.
Statement of Assets and Liabilities of the Government
The assets and liabilities of the Government comprised mainly cash and bank balances and cash equivalents, as well as short-term liabilities usually in the form of advances from the bank by way of overdrafts, as well as the issue of Treasury Bills. Article 216 of the Constitution establishes the Consolidated Fund, whilst Section 41 of the FMA Act, pursuant to Article 220 of the Constitution, establishes the Contingencies Fund as a sub-fund of the Consolidated Fund. In addition, the Deposit Fund was established by Section 42 of the FMA Act. The balance sheets of these funds at the end of the year would normally comprise the assets and liabilities of the Government.
The Statement of Assets and Liabilities as at the end of 2017 shows a net liability of $124.220 billion. It comprises mainly the balances on the Consolidated Fund, other bank accounts and the Monetary Sterilisation Account which was set up to capture the proceeds of the issue of medium-term Treasury Bills.
Because of the use of the cash basis of accounting, other assets such as fixed assets and inventories were not reflected in the statement. The Government had agreed to implement accrual accounting in the form of the International Public Sector Accounting Standards. However, progress has been slow and at the time of reporting training was being undertaken.
Statement of Public Debt
In accordance with Article 221 of the Constitution, the Public Debt of Guyana and the servicing of that Debt are a direct charge on the Consolidated Fund. In addition, Section 3(1) of the External Loans Act authorises the Government to raise loans outside of Guyana not exceeding $400 billion. Section 3(6) of the said Act also requires all agreements relating to such loans to be laid before the National Assembly as soon as practicable after the execution of such agreements.
The public debt as at the end of 2017 stood at $381.696 billion. The external portion amounted to $254.405 billion, equivalent to US$1.232 billion, an increase of US$91 million compared with the balance at the end of 2016.
The following gives a summary of the public debt at the end of the last three years:
2017 2016 2015
$M $M $M
External debt 254,405 235,711 232,097
Internal debt 127,291 128,876 119,976
TOTAL 381,696 364,587 352,073
Schedule of Government Guarantees
The FMA Act defines a Government guarantee as “a contingent liability that is an obligation undertaken by the Government to pay the debt of a third party in event the third party defaults on its debt obligation”.
By Section 3(1) of the Guarantee of Loans (Public Corporations and Companies) Act, the Government is authorized to guarantee the discharge by a corporation or a company of its obligations under any agreement with a lending agency. The aggregate amount of the liability of the Government in respect of such guarantees is not to exceed $1 billion. This limit has been lifted in 2013 by $50 billion to accommodate the Power Purchase Agreement between Guyana Power and Light and the Amaila Falls Hydro Inc. for the supply of electricity. In addition, earlier this year, the Government guaranteed a loan of $30 billion by the Special Purpose Unit of NICIL to provide for the restructuring of GUYSUCO.
Section 71 of the FMA Act requires the Minister, as part of the annual consolidated financial statements, to certify and issue an official schedule of Government guarantees, identifying, among others, the public entity whose borrowing has been guaranteed, the identity of the creditor, and the amount of the Government’s potential obligation in respect of the guarantee.
The Auditor General reported that no schedule of Government guarantees was submitted.
Schedule of Contingent Liabilities
The FMA Act defines a contingent liability as “a future commitment, usually to spend public moneys, which is dependent upon the happening of a specific event or the materialization of a specific circumstance”. The general principle for the recording of a contingent liability is the probability of occurrence of an event. If such probability is remote, then the transaction is a contingent liability. If there is a possibility that the event will crystallise out, then financial prudence will dictate that the transaction be recorded as an actual liability.
The Auditor General has reported that no schedule of contingent liabilities was submitted to him.