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Things we have not noticed

Introduction
Following, but not as a result of last week’s column addressing the parlous state to which Cabinet Secretary Dr Roger Luncheon has brought the National Insurance Scheme, I had two very interesting conversations, one with a business leader and the other with an MP. In advance of consultations to be held with the actuary on his draft report on the eighth five-yearly actuarial report on the NIS, they both wanted to know my thoughts on the report’s findings and recommendations. Both seemed not to be in the least bit uncomfortable to admit that while they had last week’s Sunday Stabroek they did not get around to reading the newspaper or the full-page column on precisely that topic. We can only guess about their contribution to a consultation for which they would have been so hopelessly unprepared on a matter of such grave national importance, a matter that has been the subject of several articles over a recent two-week period.

It is even worse. By now we all should have been aware that the government of which Dr Roger Luncheon is the Cabinet Secretary and the Board of the NIS of which he is the Chairman, did not implement the recommendations contained in the sixth and the seventh actuarial reports on the Scheme at December 31, 2001 and 2006. But the two persons I spoke with apparently did not know about the parlous state of the Scheme, while my politician friend was bold enough to ask seriously but rhetorically, how did we “allow that?” Perhaps our politicians have been reading too much Lewis Carroll.

A second issue on the NIS is the location of the consultation. Now you would expect that anyone consulting with the actuary would want to meet with him outside of the framework of the NIS Board or its chairman. But that kind of liberal and rational thinking would in Dr Luncheon’s eyes be too dangerous. The consultation had to take place with Dr Luncheon, whose leadership of the Scheme is not insignificantly responsible for its parlous state, at Luncheon’s office and under his chairmanship. Dr Luncheon may strike many as a bumbling incompetent but he remains a dangerous practitioner of artful politics. The idea to hold the consultations on his turf and in his presence was clearly designed to control any criticisms of his government’s abominable management of the Scheme, now facing its worst crisis in 42 years.

Even as we ponder the serious medicine prescribed by the actuary to address the crisis the NIS faces, my hope is that the media would now ask the private sector as well as the political parties and the trade unions in particular, for a report on the consultations. As I indicated last week, I am particularly concerned that if the recommendations are accepted the burden of the adjustments would be felt mainly by the workers of the country.

Now you see it, now you don’t
Today’s subject seeks to raise questions on other matters we may not have noticed. It touches on the disproportionate sharing of the benefits and burdens of the taxation system and the inequality it has spawned in the vast disparity of wealth among those who are part of the power structure and those outside of it. This column has addressed such disparity time and time again and for emphasis captioned a column on January 29 of this year drawing attention to the US system under the topic, “If Mitt Romney was in Guyana, his 13.9% tax rate would have been lower.” The reason is that our tax system favours the employers, those with capital over the workers, who often struggle to make ends meet and who at the end of their working lives which the actuary now says should be extended to sixty-five have nothing but an NIS pension to look forward to. I will deal with that disproportionality next week and look at how different types of income are taxed differently in Guyana.

For starters, let us look at the system of remission of duties granted by the government which was reported on each year in the annual report of the Auditor General up to 2005.

There is a lot to argue with on whether some of the figures do not defy the logic of the reported performance of the economy during the six years. The wild swings between 2003 and 2005 seem to make little sense, but that is really not relevant here, except perhaps to reflect the quality of some elements of the work done by the Audit Office. As for the revenues of the country and their impact on the resources available to spend on education, health, security and infrastructure, it matters little whether the authority to grant remission of duties since 2003 is vested solely in the Commissioner General as the Audit Office seems to think.

But even if the Audit Office is correct, and regardless of where the range of authority lies, there should surely be some formal manner in which the body vested with the powers of remission reports to taxpayers and the National Assembly on the extent and value of remissions granted. If the power is vested in someone else, the one person who should insist on the publication of the information is the Minister of Finance who has constitutional responsibility for the national budget. Any taxes required to meet public expenditure which are borne, if at all, at lower effective rates by one segment of the population, must inevitably be met by those who do pay. But coincidentally or otherwise, the Audit Office ceased to report on remissions from the time Dr Ashni Singh became Finance Minister.

Dr Singh and tax remissions
Dr Singh has been egregiously reckless on the expenditure side of the Budget, misdirecting public funds to NICIL of which he is the Chairman, making unlawful withdrawals from the Contingencies Fund for which he is solely responsible, and authorising the transfer of billions of dollars from the 2000 series bank accounts which requires statutory authority. Under the Jagdeo presidency – and quite possibly still – spending outside of the authority of an Appropriation Act became normal with not even a hint of protest from the Finance Minister. After his role in the unlawful granting of concessions to the former President’s friend, it is difficult for anyone to believe that he is any less careless with the country’s tax revenues than he is with its expenditure.

Yet, our laws give the Minister of Finance enormous powers to give away tax revenues, over what may appear to be a small range of taxes but which have substantial fiscal implications. We start with the first and perhaps best known concession, the tax holiday. Under the Income Tax (In Aid of Industry) Act, the Minister of Finance has discretionary powers to grant an exemption from corporation tax with respect to income from new economic activity of a developmental and risk-bearing nature, or from dozens of economic activities. Without putting too much of an emphasis on it, the ease with which Mr Jagdeo and Dr Singh amended the law for friends shows how elastic and discretionary the law is.

And bear in mind that in approving tax holidays, the Minister is also extending exemptions from Property Tax and the Capital Gains Tax act.

Here again there is a silence feeding the appetite of the conspiracy theorists. Tax holidays can extend from five to ten years and cost billions. So the law requires some accountability. Under the Investment Act the Audit Office is required to carry out annual audits of the tax holiday incentives granted by the Minister, but the Audit Office has failed in its obligations under section 38 of the Investment Act to have laid in the National Assembly such a report for any year. The deadline for this is six months after the end of each financial year.

I have repeatedly raised this omission with no reaction from anyone. Surely the Public Accounts Committee has a duty to deal with this blatant disregard for the law with the potential of massive cover-up of tax giveaways. All to the detriment of those who pay taxes.

To be continued

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From recklessness to inanity: the state of the NIS

Introduction
Dr Roger Luncheon, Chairman of the National Insurance Scheme (NIS) and chief spokesperson for the Government is denying the reality of the parlous state of the NIS. His amazing comments and pretended reassurance that “the scheme is healthy… I intend to draw pension for a good lil while,” seems to be a reaction to the findings of the independent actuaries as contained in the Eighth Actuarial Report of the National Insurance Scheme (NIS). By law, the NIS is subject to a five-yearly review by actuaries whose principal task is to determine whether the Scheme is operating on sound financial and actuarial bases and whether it provides adequate and affordable levels of income protection. Such reports invariably include recommendations on steps required, where necessary, to bring the Scheme back to viability, or where its assets and income far exceed its actual and actuarial liabilities, to reduce the over-funding by a reduction of rates.

This applies to all schemes – private and public – and the recommendations of the actuaries are taken seriously and acted upon promptly. Not so with the NIS under Dr Luncheon.

The responsibility for the failure to deal with the recommendations arising out of the 6th and 7th actuarial reports at December 31, 2001 and 2006 has been murky and confusing. In each of their annual reports since 2004 the directors have admitted to being “in the process of reviewing and implementing the recommendations.” So when Dr Luncheon tells the press that “The board was rather selective with regards to the recommendations [in the 2001 and 2006 actuarial reports] that it endorsed and implemented,” he is more disingenuous than dishonest.

Duplicity and its consequences
The truth is that the decision to implement or not the recommendations of the actuaries lies not with the directors but with Cabinet. Indeed Dr Luncheon gave a hint of this when he added to his comments that “the government is also exploring a new intervention, such as putting to parliament sustainable measures, to keep the NIS from failing.”

But such duplicity and delay have consequences. As Ram & McRae wrote in their Focus on Budget 2012, the actuaries became so frustrated about the failure to implement their 2001 recommendations that they felt it necessary to restrict a full menu of recommendations, given the outlook of the Fund and the concerns regarding some benefit provisions.

They added that if the limited recommendations were implemented, “then other changes may be considered later.” Ram & McRae concluded that that huge warning signal was missed by the entire Board of the NIS.

Dr Luncheon’s denial is not the only dangerous absurdity to have emanated from him. He actually found it possible to say that his government considers any decision on the Scheme in the same manner as it considers same-sex marriage or the decision on the death penalty!

The Government can choose to tolerate this level of banality in its midst but clearly Dr Luncheon is very bad news for the NIS in particular and ought to have been removed years ago.

Deficit sooner rather than later
One of the reasons for acting promptly on recommendations made by the actuaries is that delay prolongs the underlying problems and exacerbates their consequences to the point that when a solution is finally accepted, the medicine is much bitterer than it might otherwise have been.

A painful example of such a situation is evident in the warning contained in the 2006 Actuarial Report which had projected that total expenditure in 2014 would exceed total income for the first time in the scheme’s forty years, and that unless contribution rates are increased, the Scheme’s reserves would be exhausted by 2022.

But Luncheon and his mindless men and a few women went merrily along their do-nothing path, the result of which is that we are now confronted with the revelation by the actuaries that the NIS experienced just such a deficit ($371 million) in 2011, and is facing an even larger deficit in 2012.

This means that something has gone dramatically wrong in the past couple of years to make a bad situation egregiously worse. And that thing is the NIS’s failed investment in CLICO of close to six billion. Even after the unlawful transaction involving the CLICO head office in Camp Street Georgetownm the NIS is left with a $5 billion hole in its balance sheet and no income from more than 20% of its investment.

The painful medicine
The actuaries are now recommending strong measures that would hurt the beneficiaries of the Scheme who are mainly persons over the age of sixty and who would otherwise be expecting to receive a pension after decades of contributing to the Scheme. Here are the principal measures recommended and my comments thereon:

1. Increase the contribution rate from 13% to 15% no later than January next year.

Some of the relevant considerations are whether the increase should be borne in the same ratio between employers and employees or some other ratio; whether the two percentage point increase should take place at once or staggered; or whether there should be any increase at this time.

We can expect a series of consultations with the business community of which one member has already come out against any increase, and the labour unions. It is unlikely that the sugar workers will agree to such an increase even as they battle the employer for more take-home pay.

The workers and their advisers should avoid being misled into believing that this is the maximum increase they may have to face over the next few years. Pages 32/33 set out two contribution scenarios to meet the funding objectives of the Scheme. In the first case the contribution rate goes up to 19% in 2019 and in the other the contribution rate is a more modest 16.5%.

From a purely financial perspective the government might welcome the immediate increase to 15% of insurable earnings. This will bring in new revenues with no immediate outflows in the form of pension or other benefits payments, particularly if it can cajole the unions to accept this and recommendation 2 below.

In any case, if we stick to form, do not expect this recommendation to be acted on before Budget 2013.

2. Increase the wage ceiling to $200,000 per month.

The increase is close to 40% of the current insurable earnings and again, will bring in additional cash inflows with very little immediate benefits to the contributors. For each employee who earns more than $200,000 per month, the increased contribution will be over $11,300 per month of which the employer will pay $6,800 and the employee $4,500 more per month, both assuming that the share of the contribution split remains at 7.8% for the employer and 5.2% for the employee.

3. Freeze pension increases for two years or until the contribution rate is increased and finances improve.

This recommendation is a three-edged sword in which the key players are the pensioner, the employee and the employer. The question is who decides that the finances have improved and what is the yardstick to measure that improvement.

The consequences of a freeze are enormous for those who rely solely on the NIS pension for survival. A freeze means that the pensioner might move from three meals per day to just two or even less.

4. Move up the pension age from 60 to 65 in a phased manner.

The situation gets worse. If this recommendation is accepted, the worker will now be working and contributing to the Scheme from the age of 16 to 65 – 49 years – and will receive pensions from the NIS for a mere few years – unless the life expectancy increases dramatically.

We have to wait and see what the 2012 census tells us but the 2002 census reported that while the numbers of those 65 years and over have risen proportionally, from 3.9 per cent in 1980 to 4.3 per cent in 2002, they are still small in number.

It is true that the census data do not correspond to NIS pensions, since these are also paid to persons no longer living in Guyana, but the numbers cannot be that large.

The financial and actuarial consequences of this increase will be a significant increase in contributions income over the life of every member of the Scheme corresponding with a similarly large decrease in pension payments to them.

And there will be other implications such as the compounding effect on public servants who now retire at 55 but have to wait another five years for their NIS pension. They will now have to wait ten years.

5. Make changes to old age benefit provisions such as:

The actuaries recommend a revision of the pension accrual rates so that the maximum 60% benefit is attained after 40 years of contributions instead of 35; lifting the number of years over which insurable wages are averaged for old age pension calculations from 3 to 5; and amending the basis for pension increases from the minimum public sector wage to price inflation with a limit.

Each of these will have the same kind of effect – increasing the contribution income to the Scheme and reducing the value of the lifetime benefits which the contributing worker will receive.

The actuaries do however make some recommendations of value to beneficiaries. They call for the equalization of the benefit rules for males and females where differences still subsist and for increasing the minimum survivor’s pension to 50% of the minimum old age pension and up the maternity grant to at least $5,000.

Conclusion
The workers of the country are being called upon to pay for the inertia, intransigence and, dare I say it, the stupidity of the government for more than ten years, aided by the perpetual breaches by the directors of their statutory and fiduciary obligations.

And amid all this the only private sector response I have heard so far is the shameless admission that the private sector will increase its evasion of their obligations under the NIS Act, as we witness with the VAT Act, the Income Tax Act and the Corporation Tax Act.

The failure to address the weaknesses in the NIS over the past ten years has guaranteed that there is no easy option. The workers will have to pay and suffer.

Those who are responsible such as the Finance Minister, the Chairman of the NIS Board and his band of directors are never going to be called upon to answer for their dereliction.

The NIS is a national tragedy. Let us now see how the unions and in particular the government-leaning Federation of Independent Trade Unions of Guyana (FITUG) respond.

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Obama and the fiscal cliff

Introduction
Proving that true honeymoons are for first timers only, President Barack Obama returned the morning after the night before to his office/home at the White House and was immediately confronted with some of the immediate challenges he would face the second time round. There is no bigger a challenge than what is referred to as the ‘fiscal cliff,’ a combination of tax increases and spending cuts which are scheduled to go into effect January 2013 and thereby result in a corresponding reduction in the budget deficit.

In an address three days after the elections, President Obama claimed, with considerable justification, that he and his opponent Mr Mitt Romney had proposed to the electorate two competing visions for the reduction of the ballooning fiscal deficit and the national debt. Obama’s “vision” explicitly included the requirement that those whose income exceeded US$250,000 per annum contribute a bit more in the form of higher taxes. Mr Romney on the other hand had campaigned for a 20% across-the-board reduction in tax rates financed in part by the removal of tax-shelters such as charitable donations and mortgage interest deductions.

The new opposition
With the political system and culture of the US being what they are, Mr Romney is now part of the political history of that country. With no elected national, state or party office, Mr Romney’s brief role as leader of the Republicans now falls on John Boehner, the Speaker of the House of Representatives. Mr Boehner too claims a popular mandate for his party which retained control of the House, helped by what is euphemistically called re-districting led by his party and/or the courts. Speaking one week before a scheduled meeting with President Obama this coming Friday, Mr Boehner said that any deal to avert the fiscal cliff should include lower tax rates, the elimination of special interest loopholes and the revision of the tax code.

Both Obama and Boehner could soon learn of the catastrophic consequences of fighting at the edge of a cliff–higher taxes, a rise in the rate of unemployment and the country falling back into recession. One would think therefore that all this pre-meeting talk is no more than bravura and that both sides – already buffeted by their respective media friends to hold out – will see the need for some compromise. In my view Obama has a much stronger mandate and need not demonstrate the excessive caution with which the cloud of re-election overshadows the acts of first-term presidents.

Bush 2
The debate really goes back to the Bush 2 era when tax rates were reduced, when the economy was in surplus and when there was no war. The reasoning of President George Bush was that there could be no better time for the reinforcement of the supply-side doctrine pronounced by the patron saint of the Republican Party, President Ronald Reagan. But soon came 9/11 and two costly wars in Iraq, since ended by Obama, and Afghanistan which Obama is committed to end in 2014.

President Obama came into office in 2008 with a pledge to reduce the deficit and the national debt. In fact, just the opposite has taken place with the national debt increasing by more than $5 trillion during his first presidency. Mr Obama sought to explain – and the electorate appears to have accepted – that the increase was largely due to the wars and the policies of his predecessor. Duly excused if not forgiven, Mr Obama must now keep good on his promise not for his legacy but for the stability of his country and the world’s economy.

The price of failure
Meanwhile, Boehner is playing the kick-the-can-down-the-road game and has suggested that no real decision be taken for another year while the Congress and the Senate work on tax reform. Obama, emboldened by both the presidential as well as the popular vote last Tuesday seems ready to take on the Republicans in what might seem to be a test of wills and of principle. It is hard to understand why and how the Republicans, still to recover from a presidential loss that has left them shell-shocked, would be willing to take the country over the cliff for the cause of tax increases on the top 1% of the population. Hopefully, Boehner, who demonstrated a spirit of compromise in discussions with Obama in his first term, will be able to take that further on this occasion. While there are some who attribute blame to Obama for the failure of those discussions, Mr Boehner now has to win over the leadership of his own party in which failed VP candidate Paul Ryan, a supply-sider has a strong influence, if not being the principal contender.

So what in fact will happen if there is no agreement between Obama and Boehner? First the tax side. In addition to some tax cuts which have already expired but which are up for renewal in 2013, there are many specific changes which will automatically take place, some of which are too detailed for this column. In essence, however, the Bush-era tax cuts are set to expire, which will bring the tax system back to 2001 levels; President Obama’s 2 per cent payroll tax cut holiday will expire, and a series of other temporary tax cuts for businesses that Obama enacted will end.

Some groups in the US estimate that more than three out of four Americans will see some form of tax increase next year with the Bush tax cuts alone affecting 100 million persons. The Tax Policy Center estimates that the average US household would face an average of a $3,500 rise in their annual tax bill.

No hyperbole
This does not appear hyperbolic since some of the taxes cut across the board and will affect lower and middle-income groups. These are the very people whose cause Obama has championed since his days as a community organiser and who voted him a second term. The loss of the Earned Income Tax Credit, a refundable credit and the “payroll tax holiday,” a 2 per cent Social Security tax cut on the first $110,000 in wages together with the expiration of the Bush tax cuts, as well as tax and college credits will have real effects. It would be an unpleasant pill for Obama to swallow in the face of the hard line taken by his political opponents.

At the higher end, taxpayers will be hit with the Bush era tax rate changes. The two top tax brackets are set to rise from 33 and 35 per cent to 36 and 39.6 per cent respectively. Additionally, the capital gains and dividend tax rates will rise from 15 per cent while the 15 per cent dividend tax rate will equal income tax rates.

As I said above, some columnists, including Paul Krugman, a Nobel Laureate and New York Times columnist are advising Mr Obama to hang tough, that this is not the time to negotiate a “grand bargain” on the budget that snatches defeat from the jaws of his hard fought victory. His advice that Mr Obama should let the Republicans take the responsibility for driving the car over the cliff has risks, including the impact on the poor and the middle class, but Obama would no doubt recall that when Speaker Newt Gingrich did something not dissimilar on spending during the Bill Clinton presidency, the cost to the Republicans was considerable.

Mr Krugman argues that a stalemate would hurt Republican backers, corporate donors in particular, every bit as much as it hurt the rest of the country. As the risk of severe economic damage grew, Republicans would face intense pressure to cut a deal after all.

He takes a slightly less catastrophic view of the consequences of the cliff, pointing out that it is not like the debt-ceiling confrontation where terrible things might well have happened right away if the deadline had been missed. He argued that this time, nothing very bad will happen to the economy if agreement is not reached until a few weeks or even a few months into 2013.

And what about the cuts?
Following the failure of the debt ceiling debacle, the US House of Representatives appointed a Joint Committee on Deficit Reduction under the authority of the Budget Control Act of 2011 with the mandate to find a way to cut spending by $1.2 trillion over the next ten years. Unlike so many other committees which are often set up to fail, this super-committee had no such option: if it could not come to an agreement, there would be a trigger – an automatic $1.2 trillion in spending cuts would occur, half from domestic spending and the other half from the Department of Defence. The automatic spending cuts will see the first $110 billion in cuts starting January 2, 2013.

This means that the Defense Department will see per cent across-the-board cuts, while “discretionary” programmes or those that do not have earmarked funds will face cuts of about around 8%. Certain to face cuts is the government-run health care programme for seniors which would face a 2 per cent cut in Medicare payments to providers and insurance plans.

Even as a visitor to the US myself, I find it hard to say how these cuts will affect even an area with which I am familiar, given the way the individual states and the federal government operate. But it is a fair bet that across the country, infrastructure, schools, public health and homeland security would be victims of the cuts.

There are some programmes that are exempt from the cuts. Specifically identified are Social Security, Medicaid, supplemental security income, refundable tax credits, the children’s health insurance programme, the food stamp programme and veterans’ benefits, while the White House has also said military personnel would be exempt from the cuts.

Conclusion
Some months ago the US Congressional Budget Office (CBO) projected that falling over the fiscal cliff could lead the US economy into a “significant recession.“ It estimated that the economy would shrink by 2.9 per cent in the first half of 2013 and by 0.5 per cent for the whole year and that the unemployment rate would increase to 9.1 per cent. It is now 7.9%.

There are those who argue that this is a lame-duck presidency – the period between two elected officials – and that nothing should be done now. Obama is unlikely to agree. Whether he will act like his predecessor George Bush did, boasting that he had won political capital which he was prepared to spend, remains to be seen.

Next Friday’s discussion between President Obama and Speaker Boehner should be a good pointer.

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Auditor General’s report 2011: sanitizing or whitewash

Introduction
The 2011 Auditor General’s report is the earliest since 1993. It is also among the poorest in terms of quality and content. Those journalists who look forward to going to town on the report will be disappointed by the shortened and sanitized work produced by the national Audit Office. Indeed two days after the report was published it had ceased to attract media attention. The word “abuse” that described the management of the Contingencies Fund by the Minister of Finance has been replaced with more acceptable language “continued to be used without meeting the requisite criteria” – “urgent, unavoidable and unforeseen.” It is more than mind-boggling that Mr Sharma could think that expenditure related to the elections of November 28, 2011 could have been “unforeseen,” particularly since in a special report on advances to the police for the elections, Mr Sharma acknowledged that such advances were also a problem in 2001 and 2006.

Here are some other issues which have been highlighted in past audit reports which have been relegated to verbiage in the report itself, if they appeared at all: Procurement of drugs for the Ministry of Health and the Georgetown Public Hospital Corporation amounting to three billion dollars from New GPC; procurement of pirated textbooks by the Ministry of Education; fraudulent payment of pensions and gratuities; stale-dated cheques; lottery abuse; etc. And things that appear to have escaped attention were monies spent on Pradoville 2, contract employees, the severe weaknesses at NCN and failure to account for NICIL.

Once again the Audit Office fails to look into the annual sum of $100 million allocated to the Ministry of Culture, Youth and Sport for arts and sports development. Had it not been for the fact that this issue has been publicly raised on several occasions, I would have suggested that, bad as it is, the Audit Office is unaware of the existence of the Fund. That they must have been aware of it points to a more serious matter: that they are not keen in helping taxpayers’ knowledge of how the $100 million per year is spent, reportedly under the direction and control of no more than two individuals.

Not understanding the implications
Some time ago, in reviewing a special report of the payments of social security, I suggested quite strongly that the Auditor General does not seem to appreciate the implications of some of his own findings – or could not really care. Let us take as an example paragraph 11 of the report which states that, “The Ministry of Health failed to adhere to the provisions of Section 43 of the Fiscal Management and Accountability Act (FMAA), which requires any unexpended balance of public moneys issued out of the Consolidated Fund to be returned and surrendered to the Consolidated Fund at the end of each fiscal year.”

Now compare this with paragraph 65 of the report which tells taxpayers that “the Guyana Office for Investment (GO-INVEST), Environmental Protection Agency (EPA) and Institute of Applied Science and Technology (IAST) failed to make timely refunds of unspent balances as at 31 December 2011, which respectively, amounted to $20.598M, $223,730 and $1.794M. Since these refunds were paid to the Office of the President during the year 2012…”

At a time when the National Assembly had voted to reduce the allocation of that Office, a clear breach of the FMAA that puts money into the Office of the President rather than into the Consolidated Fund raises legitimate questions. Not only does the report leave it to the reader to wonder whether or not the money was paid back into the Fund, but there is nothing in the National Estimates to indicate how the money was eventually disposed of.

Contingencies Fund
Let us return to the Contingencies Fund, the sole responsibility for which lies with the Minister of Finance. We learn that he authorised eighty withdrawals from the Fund over a period of nine months, or an average of nine withdrawals per month. What the Audit Report does not acknowledge is that the Minister of Finance must report to the next sitting (emphasis mine) of the National Assembly on all advances made out of the Contingencies Fund, specifying (a) the amounts advanced; (b) to whom the amounts were paid; and (c) the purpose of the advances.

The Minister must also come by way of a supplementary appropriation act and for the replenishment of the Contingencies Fund. But so that the National Assembly is aware of the consequences of its decision, the FMAA imposes another requirement on the Minister: he has to state the reasons for the proposed variations and provide a supplementary document describing the impact that the variations, if approved, will have on the financial plan outlined in the annual budget.

The requirement for a supplementary document applies to all financial papers, whether for the replenishment of contingencies or for a variation of the budget. Yet, Dr Singh has never once produced a supplementary document to the National Assembly for any of more than fifteen supplementary appropriation bills or so that he has presented to the National Assembly. Regrettably the members of the National Assembly have failed to request of the Minister that he comply with the Act as a condition for granting him any money.

I have written the Speaker of the National Assembly and he has promised to address the omission with the Minister.

Poor Ramnarine
We can now turn to the special report into the $90.649 million paid from the Contingencies Fund for feeding the Police, which was released by the Ministry of Home Affairs prior to the circulation of the wider 2011 Auditor General report. The Audit Office appears to have exonerated Mr David Ramnarine Divisional Commander, but not before his career path was seriously obstructed at the instance of the Minister of Home Affairs.

Again, in a half-baked way, the special report fails to question or explain how public funds could find their way into the bank account of the Police Welfare Fund which is not a public fund, and therefore a breach of the FMAA. Nor does the report explain why the unspent balance of several millions was only refunded into the Consolidated Fund in March 2012. There is a strong and widely held suspicion that the refund would not have happened had the opposition not brought the matter to the attention to the public. The Audit report could therefore be seen to be something of an escape route – if not a cover-up – for wider and higher-up impropriety in the Police Force. The real issue was not Ramnarine – he was the scapegoat. The issue was about the arrangement that but for the intervention of the opposition, would have left taxpayers’ money with the Police Welfare Fund.

There is one final danger point about the Contingencies Fund which I have pointed out before, and which was borne out in this case. The Audit Office not only consistently fails to report on important non-compliance by the Minister with the requirements of the FMAA, but also fails to pursue the actual spending of the sums from the Contingencies Fund. Short of appointing a professionally qualified accountant to the position of Auditor General I see little prospect for better control and oversight of the Contingencies Fund.

A solution
The National Assembly needs to act in this matter. They can do so in two ways. The first is to reduce the amount of the Contingencies Fund which the PPP/C administration raised from $500,000 to what amounts to more than $3.5 billion. If the Minister must come to the next sitting of the National Assembly for reporting and replenishment then $3.5 billion is an extraordinary sum. Reducing the amount – which requires a small legislative change – will introduce some level of accountability and oversight and rein in the Minister of Finance who seems impatient to bring supplementary appropriation bills to the National Assembly prior to spending. The second is to remove the amendment to the Constitution (Prescribed Matters) Act and return to the age limit of 55 years. Now that all our MPs are trained in legislative drafting that should be a simple task.

The fact is that Mr Sharma cannot do a proper job, given his dependence on the Government for his continuance in that position.

Value for [whose] money and drugs
And while we have not moved off from special reports it may be convenient to refer to two Value for Money audits which Mr Sharma has been working on for three years and which according to the 2009 Audit Report were “expected to be completed before December 2010.” In 2012 we are assured that the Audit Office is in the “process of finalizing” these. What makes the inordinate delay in the completion of these of considerable concern is the importance and relevance of the subject-matters of the exercise: “A Review of the Operations of the National Board and National Procurement and Tender Administration” and “An Assessment of the Management and Control of Drugs and Medical Supplies at the Ministry of Health.”

The 2011 Audit Report advertises these “projects” as demonstrative of the Office’s “commitment in ensuring the provision of reports which will facilitate improvements in the operations of our clients.” The public would recall that the exercise was first announced three years ago and would be aware that since then expenditure on goods and services has increased from around $75 billion to $125 billion and that on capital projects has almost doubled, moving from $45 billion to $75 billion. To compound the matter, the procurement laws apply to state-owned entities and other statutory bodies which would add another several billions of dollars per annum in places like GuySuCo and GPL.

And what about the purchase of drugs? For the Georgetown Public Hospital Corporation, expenditure on drugs and medical supplies in 2011 was $1.620 billion, while for the Ministry of Health the expenditure was over $2.6 billion. Not surprisingly, the lion’s share of the expenditure went to the New GPC which is known to have strong government ties and which is usually advanced the money to finance the procurement and supply of the drugs.

With the Audit Office having such fancy names as a Value for Money Unit, a Forensic Unit and a Quality Assurance Unit, taxpayers would like it to move expeditiously on a thorough examination using business principles and practice of this generous arrangement which involves reported markups on the supplies that many would consider price-gouging. And as for procurement, there can hardly be any financial and corruption issue that deserves a higher priority.

Conclusion
There is one final point to note in today’s column, and that is in relation to the 2000 Series Bank Accounts held with the Bank of Guyana. Dr Goolsarran and I have drawn attention to the drawing down of some of these accounts without complying with the law and any proper accounting for some $30 billion. Not only does the 2011 Audit Report ignore responsible and reasonable calls for explanations, but the 2011 table of the balances in Static and Active accounts is either amateurishly prepared or deliberately set up to mislead the readers and the National Assembly. In a table that is designed to show movement over time one does not exclude balances in an earlier year because the balance no longer exists. In the column for the respective year the amount ought to be shown. So that in the 2007 and 2008 columns, the amounts of $4,410.3 million and $4,690.6 million should have read $7,591.3 million and $7,868.4 million respectively.

It is troubling when an audit report itself becomes suspect.

To be continued

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An abomination for an Auditor General report

The report of the Auditor General on the public accounts of Guyana was tabled in the National Assembly on Monday. In a country with weak accounting and accountability, an Access to Freedom Act that has not been brought into force, an Integrity Commission without Commissioners, no Public Procurement Commission, no anti-corruption or whistleblowers legislation, the report by the Auditor General – if its Executive Summary is an indication of its contents – is striking for its sterility.

A comparison of the 2011 Executive Summary is an almost identical reproduction of the 2010 report.

Note that 2011 was a less effective audit than 2010 which in any case was itself not a good audit: it ignored the armies of contract employees, the off-constitution spending by that abomination called NICIL, slush funds across ministries and including the dormant accounts, the loan recovery unit, the National Frequency Management Unit.

The problem we face is an unqualified acting Auditor General who plays to his master’s voice in order to retain one of the most lucrative employment contracts in Guyana. If we need any proof of this we need go no further than the clandestine attempt to lay a path for confirmation.

If that happens, if we think the 2011 audit is poor, we have not seen anything yet.