As we all know there are many public issues and ambiguities pertaining to both domestic and external finances of the country. The parliamentarians spend more time in debating the controversial issues on finances and it is a waste of time in the context of the development of our country.
Why cannot they debate it at a specific location in the parliament come to a conclusion and make a joint statement as to what further action to be taken. By this way valuable time could be saved to discuss the development drives in all districts of the country.
The audit commission was a promise given to by the government and it is high time that a very active and an efficient audit commission be set up to save billions of public funds.In quoted companies, there is a separate Audit committee to look into the audit aspect of each company.Our public institutions should follow the same if we are to achieve good corporate governance in public institutions.
Let us now consider the specifics relevant to the issue.
What is Public Audit
An audit is carried out to ensure public accountability which is,
1.The obligation of persons/authorities/bodies entrusted with public power and/or resources to report on the management of such resources and to be answerable for the fiscal, managerial and programme responsibilities that are conferred.
2. The answerability of the executive to the legislature and through the legislators to the people, civil society and other stake holders.
Why Audit
All societies are interested in good governance and good governance is a product of public interest and public accountability,maintaining the integrity of the nation, food/fuel security,maintenance of law and order, eradication of illiteracy, Technological advancement, regional development, social changes through legislation, maximum happiness for public, etc., constitute public interest.
Adequate financial resources are needed for public interest to bear fruition. Policy formulation may have political orientation but spending is a common denominator and the accounting of such spending goes hand in hand with public accountability which is a must for good governance. Audit is to ensure this public interest and public accountability.
Accountability Structure
Effective exercise of accountability depends on the quality of internal control, information management, performance review, financial monitoring. Internal audit, etc. The accountability structure as it positions today,falls broadly under two categories, namely, administrative accountability and public accountability.
Internal Accountability Structure
Internal accountability provides support to the senior management to meet their obligation for public accountability by providing timely, reliable and relevant information on performance. Cabinet is the highest executive body and the minister is personally accountable to the legislative for implementation of the approved policy of the Government. The secretary is responsible to the Minister.
His focus is on programme accountability. His main financial responsibility is operation of the budget allocation and proper use of the financial resources for achieving the approved programmes of government.
Public Accountability and Public Financial Accountability
Obligations of public financial accountability are met when the government places the budget in the legislative and the legislative debate and feedback from people influence government policy and budgetary decisions. Similarly,tabling of audited accounts in time is a clear demonstration of public accountability.This enable the legislators,media and public to raise questions about performances of government.This will also enable the donor agencies and investors to form opinion about the financial health of the government.
At another level,the public accounts committee will be able to explain the performances for a year to the members of parliament in a confident manner.Duties and functions of the Auditor General is carried out in pursuance of the provisions in Article 154 of our constitution for the direction of the independent examination on the effective and efficient maintenance of parliamentary control on the Public Finance devolved on parliament in pursuance of provisions in Article 148 of the constitution.
The work scope of the Auditor General mainly cover the following areas.
1. Ministries and Departments
2. Foreign Funded Projects
3. Provincial Councils
4. Public Corporations,Authorities, Boards and Statutory Funds
5. Non Statutory Funds
6. Local Authorities
7. Special Audits
8. Public Companies
According to the 19thAmendment to the constitution it was accepted by the Government that the Auditor General and his staff should be given more powers and to secure the independence not only in the operational aspects but also in finance and administration also.
The general public of this country had to savor many omissions, commissions, scams, and other malpractices of public sector administrators especially during the last 4 decades, in view of opening of the economy. In 1977. The main reasons for these could be attributed to one or more of following factors.
1.Frequent changes in Governments and regular country wide elections and the elected parties and the politicians endeavor to earn the maximum for their families, to spend for future elections,etc.,
2. Excessive authority provided to state institutions and administrators in running them
3. Absence of regular monthly internal audits and internal controls
4. Absence of corporate governance measures
5, Absence of quarterly performance reports based on draft accounts prepared.
6. Delays in the presentation of annual audited accounts.
7. Intimidations and harassment of audit personnel by politicians and their agents.
8. Lack of adequate facilities provided to the audit personnel
9. File Insecurity, missing of vital documents, computer failures,etc.
10. Promotion/Recruitment of unsuitable/inexperienced staff with political influences
The above are only some of the factors and even after 70 years of independence the internal controls, accounting procedures, management information systems and corporate governance measures of our state institutions are well below the international standards.
Few years back there was a reported case of an Audit officer of a Provincial council who was subjected to an acid attack as a result of an investigation of an irregularity. Further, a senior official of the Inland Revenue was physically assaulted in the south while returning after work.
In addition there are a large number of unreported cases of threats and intimidations on honest public officials who are only interested in doing their jobs properly. Political hierarchy also arrange transfers and demotions for these honest public officials in trying to suppress them.
Therefore, the need arises for a high powered National Audit Commission to ensure irregularities are reported first at a political party leaders meeting at the Parliament in addition to a COPE meeting monthly.This will become possible through an analytical internal audit carried out employing qualified professionals who have become senior citizens.
The commission should also highlight the “value for money spent” on annual budgetary allocations through the National budget and also on cost overruns on budgetary allocations, if any,and also on funds spent on unplanned projects and under utilization of funds.Even the recent controversies and other reported cases to Parliament arose as a result of inadequate audit practices especially the monthly internal audits.
The monthly internal audits will ensure quick unearthing of irregularities and reporting of same to the Parliament.Right now what is happening is the conduct of ‘POST MORTEMS” after many years of the irregularity, with no recovery of state funds lost in sight, in the short term.
Take the case of a ticketless traveler in the train. His/her will be subjected to a big fine probably 100% of fare plus the ticket fare. What we should seek through the Audit Commission for all irregularities is the value of funds lost,a 100% fine and the bank interest applicable from the date of loss of state funds up to the time of recovery.
This will totally eliminate malpractices committed by state officials and Politicians.With another 8,000 politicians entering the arena after the forthcoming elections, the Auditor General and his staff will have an uphill task to perform their duties. In the alternative,the elected members will take laws into their hands and override the Police also.
The political parties and their leaders also will also be pressurized due to the mere fact of threatening to cross over to the opposition if they are obstructed in their attempts to override prevailing laws and accumulate wealth from the very first day of assuming office. The idea and promise of this high powered National Audit Commission was mooted many years back.
The non-formation of the commission has resulted in large scale loss of public funds and the introduction of more taxes on the public and the business sector.
We should consider the case of Nick Leeson way back in 1994 in Singapore. Nick Leeson a Britisher who came to Singapore for fund management, was charged by the Singaporean Government for destabilizing the fund/capital markets in Singapore causing loss of local/international investor confidence.
He was arrested in Germany and brought back to Singapore for trial where he was charged on two counts of deceiving the Auditors and of cheating the Singapore Exchange including forging documents. The swift action of Singaporean Government ensured Leeson being sent to Changi Prison for 6 ½ years. The stringent laws of Singapore in all aspects has ensured a large number of foreign investors and an ever growing tourist influx from the time of gaining independence in 1965,17 years after Sri Lanka gained independence.
After 70 years of independence we have sunk deep in the mud and are pleading & begging for foreign investors who could have totally solved the unemployment problem in Sri Lanka and uplifted their standard of living.
We should have given serious thoughts on enhancing the local Government members to over 8,000.Even some of the Ministers and members of Parliament opposed the move from the time of mooting of the idea itself.It is left to be seen the service the newly elected members could do to the economic development of this country.
The proposed Audit Commission should be set up immediately to ensure control over the activities and budgetary allocations from the time they take office with a well-coordinated effort and evaluation systems.
The proposed Audit Commission need to cover capital markets,Board of Investment in addition to state enterprises & public/private partnerships.It is very essential that the monthly internal Audit reports be forwarded to the COPE and to a party leaders’ forum within 25 days from the end of a month for effective control and prompt action.This could save billions ofrupees funded by the Treasury to loss making enterprises and also for unproductive purposes.
Let us now get on to the methodology and specifics of the Audit Commission in the light of current needs and controls to be established.
1. Constitution
The commission should ideally include the Secretary to the Ministry of Finance,Commissioner General of Inland Revenue,President of the Institute of Chartered Accountants of Sri Lanka,President of the Sri Lanka Accounting Standards Committee, Attorney General and the Auditor General. A separate Secretary General be also appointed with specific responsibilities.
2. Administration
Administration be divided into the main divisions as follows.
a.Special Investigations
b.Monthly Internal Audits
c.COPE and Parliamentary Liaison
d.Staff Training & Enrichment
e.Data & file Security
f.Information Technology
g.Finance and Budgetary Compliance
h.General Administration
3.Liaison with local External Agencies
4. International Collaboration
From time to time, officials of overseas Audit Commissions & Authorities be invited to conduct specific training Programmes and also for sharing of information &findings. If required specific assistance be sought for forensic investigations.
5. Staff Cadre
Unlike other state organizations,no political influence be exercised for the recruitment of staff.Recruitment be based on merit and specific audit experience and with professional qualifications. At least 2 overseas experts should sit in the interview panel along with the Commission members.Salary scales be fixed at a higher level so that the executives and the staff could not be bought over by outsiders.All dishonest staff members will be subjected to fines and dismissal,if required.
6. Penalties for state officials,financial crime offenders & others in association
These penalties should surpass the fines/penalties under the normal laws of the country. Setting up of a superior court may well be useful to discourage offences at state enterprises. The commission findings,monthly reports,quarterly accounts,annual audited accounts be made available to the public through a special web site to comply with the provisions of the “Right To Information” Act.
The existing FCID (Financial Crimes Investigation Department) could be dissolved on setting up of the National Audit Commission as some quarters allege that it has a political face.
Professionally qualified and well experienced audit staff and executives be recruited to the commission with a higher financial allocation from the Treasury and also funded by financial grants from overseas governments/agencies to ensure the long term stability of the National Audit Commission. The setting up of the commission should not be delayed any further.All Chambers Of Commerce led by corporate magnates should immediately spearhead the initiative by meeting the President, the political party leaders and make a formal request to set up the National Audit Commission before the 10 February 2018 as already 3 years have passed for the unity Government.
The writer has no malice towards any individual or political party but only interested in preventing future financial crimes in state enterprises as we have already wasted 70 years after independence in party politics and political enrichment rather than accelerated economic development of the country. All the best for all promoters who voiced for a stronger Audit commission.
The writer is a finance professional involved in revival and stabilizing of corporate ventures for higher profitability and long term existence and could be reached via [email protected]
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