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Coping with the EPA

Introduction
Over the strident objections of President Jagdeo the Caribbean countries and the Dominican Republic will sign the Cariforum-EC Economic Partnership Agreement (EPA) some time within the next few weeks. The record will show that Guyana stood alone in its last minute efforts to have the region pause “to scrutinise further the trade services aspects of the deal.” After an unusually strong exchange involving the leaders of Barbados, Jamaica and Guyana, Guyana is in the most isolated state it has ever been for close to forty years. During that period and not least because of the grand vision of Forbes Burnham and the efforts and impact of Sir Shridath Ramphal and a long line of talented foreign ministers, Guyana was among the leaders of not only CARICOM but the Non-Aligned Movement, the commemoration statue of which is proudly displayed at Company Path Gardens in downtown Georgetown. We were respected by the much more powerful ACP group of countries with a generation of outstanding personalities like Mrs Gandhi, Manley and Kaunda, offering hope to the hundreds of millions of their people. And let us not forget at this sombre hour that the very seeds of the Lomé Convention were sown on the lawns of the Prime Minister’s Residence in Guyana in 1972.

The first Lomé Convention (Lomé I) came into force in April 1976 and provided a hard-won framework of cooperation between the then European Community (EC) and developing countries of Africa, the Caribbean and the Pacific regions, in particular former British, Dutch, Belgian and French colonies.

Lomé had two main aspects. It provided for most ACP agricultural and mineral exports to enter the EC free of duty. Preferential access based on a quota system was agreed for products, such as sugar and beef, in competition with EC agriculture. Secondly, the EC committed ECU 3 billion for aid and investment in the ACP countries.

The fiction of free trade
It was not a perfect agreement – General Gowon of Nigeria had earlier told the Heads of the Commonwealth that “it is a fiction to speak of a free trade area between developed and developing countries,”  but for a quarter of a century Lomé remained the cornerstone of trade and aid between Europe and the developing world. It was, however, affected by major developments in the configuration of states and their economies in the European Community  necessitating changes in the economic relationships between the countries of the Europe and those of the ACP.

Another major shift in the world paradigm was the dramatic enlargement of the World Trade Organsation (WTO) which was the club from which all, rich and poor, market based and state-driven, North and South, would consider exclusion akin to being an international pariah. In theory, the WTO is strongly committed to creating a level free-trade playing field, promoting trade without discrimination and fair competition among the countries of the world through rules to prevent unfair behaviour like dumping. If there was a sign of things to come, however, the WTO provided that sign with several major violations by the rich countries in areas where they mattered most to the poor and undeveloped countries. In agriculture, textiles and clothing protectionism, subsidies and unfair practices persisted in the developed countries while the poorer countries were compelled to open their economies in a liberalisation frenzy and remove subsidies on their products.

In 2000, Lomé was finally replaced by a new trade and aid agreement known as the Cotonou Agreement, transforming the previous convention into a system of trade and cooperation pacts with individual nations. The signs were already surfacing that ACP solidarity was being weakened and with the IMF’s influence and dominance, one by one under-developed countries were picked off and brought into the fold of the capitalist world against which they had railed for decades. Even those countries that had shaped their foreign policy along socialist lines soon spent their time and measured their success by how much development assistance they received and the amount of debt write-off they obtained.

Long gestation
How did we in the region and Guyana fare? No question that we should have been better prepared to avoid the embarrassing contretemps earlier this week in Barbados over the EPA. As long ago as 1997, even before Cotonou, CARICOM had set up its Caribbean Regional Negotiating Machinery (RNM) to handle the post-Lomé trade negotiations not only with Europe but with other countries as well. The RNM was initially headed by Sir Shridath who had presciently noted that “we have to be prepared in our minds for a world in which our markets will be open increasingly to competition and not only at the level of goods but also of investment and services.” I am not sure whether President Jagdeo, then Finance Minister was listening, but it is more than passing strange that these are some of the very issues (as well as government procurement) that are now being objected to by him as President and as a leader of CARICOM.

Arguing that it is unlikely that we would be afraid of banks and insurance companies entering our small markets, one  cynic suggested that President Jagdeo’s main objection to any EPA with a services component was in relation to government procurement which as we have seen over the past several weeks is treated as a closed shop by his government. Would an EU pharmaceutical company with a right to bid to supply drugs to the government have sat back as idly and watched the government break the law to help its friends? I doubt it. At the very least therefore President Jagdeo needs to tell the nation exactly what his concerns are, not in politically charged language but in a way the people and the private sector and civil society in particular can understand. He needs to tell us whether the support we receive from the EU as a body and the United Kingdom will come to an end and what might now be the opportunities in the EPA for our own services sector.

The lone national voice
The EPA has been on the table for several years and although President Jagdeo now claims that he has always been opposed to the deal which he will now have to sign “involuntarily” as he puts it, there is nothing in the communiqué coming out of the December 2007 meeting of CARICOM heads at which the decision to sign was made, indicating that he was opposed to signing. His major public rumbling on the EPA was voiced in an exchange with Carl Greenidge of Guyana and the RNM at the GBTI Business Forum 2008 (see Business Page of June 8, 2008, ‘President, scraps and concessions’) but any further discussion had to wait until the Carifesta party was over.

Professor Clive Thomas had for months in his Sunday Stabroek column laid out a compelling case against several features of the EPA but no one in the government took any notice and it was left to a few letter writers to join whatever little debate there has been on this issue which we are now told would affect our country’s very future. A scheduled two days “consultation” that comprised mainly speeches but little information and lasting less than one day was attended by representatives from the private sector and civil society, who clearly knew little or nothing about the EPA on which they were being consulted. The seriousness of the consultation was surely compromised by the PSC which the day before had met with the President and announced their support for his stand. It was no surprise, therefore, that  they along with civil society felt comfortable enough to give Jagdeo the mandate to tell the regional heads that Guyana would only be prepared to sign a “goods only EPA.” The problem for the President was that his mandate was too narrowly defined and it was success or failure – no win-win.

But more ludicrously he could not sign a goods-only agreement simply because none was on the table and the President must have known that.

Neglect
The years of neglect by the government of the reports coming out of the RNM whose head had ministerial rather than ambassadorial rank, the government’s abandonment of diplomacy as a main tool of regional and international negotiations and its failure to have meaningful consultations both at home and abroad now leave us in perhaps the weakest state we have been in since independence.

Machismo may make good domestic politics but our stance would have caused us some loss of face and respect among colleagues and donors. Whatever may be our views and prejudices, the EU representative did not deserve the discourtesies he received at the consultation, not only because he is a guest of our country but also because the EU is still a big donor to Guyana as successive Budget speeches would testify.

Instead of boasting about standing tall we need to take a serious look – if that is not being too optimistic − at whether our policies and actions are developmental in nature. While abusing the EU our country and economy continue to depend on rice, rum and sugar sales to that region. Our forestry and bauxite resources are exploited by foreigners in uneven investment arrangements and little returns to the country, not even with development assistance from the source countries. We have abandoned the National Development Strategy that embraced increased trade with our South American neighbours and have downgraded our diplomatic efforts to boost trade. Only this week the President announced that he is replacing one of the country’s last career diplomats with another pastured minister of the government in what could and should be our largest trading partner, Brazil. The President pleaded with his regional counterparts to wait until a meeting of the ACP Group of States in Ghana before making a final decision, but undermines the seriousness of that plea by his decision to send a junior minister to that meeting because he has a speaking engagement in China.

Let the consultations begin
If the EPA will be as disastrous for Guyana as President Jagdeo asserts with such passion and certainty, then he needs to tell the nation what steps we can and should take to counter those eventualities. Clearly our relations with CARICOM need to be reviewed and rebuilt and if, as both Jagdeo and Ramphal fear, the CSME is in further jeopardy (there is sufficient and justified uncertainty about the commitment of many of its members), then as a regional country we have to contribute to reducing that danger even as we seek to widen our trade relations with non-EU countries.

A useful framework for ascertaining the views of Guyanese and incorporating such measures would be a new Development Strategy based on the earlier version that is accumulating dust on the shelves. Let the (real) consultations begin.

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The Auditor General’s report for 2006 (conclusion)

Introduction
Today we conclude our 3-part review of the Auditor General’s report for 2006. I apologise for presenting a rather disturbing picture of the financial management of the country that stands in stark contrast to the oft-repeated boast of financial probity and accountability. What makes matters worse is that measured by tax to GDP, Guyanese pay considerably more taxes than any other country in Caricom and these are among the highest in the world. And for VAT alone, Guyana stands out among the Caricom countries with the share of GDP that is collected in the form of VAT being three times that of Trinidad and Tobago, a country which has had VAT for over fifteen years. This is no doubt, in part due to the required rate of VAT to meet the revenue-neutrality commitment by the government being considerably more than it should be. The government knows this and has been reminded of it on a number of occasions but has simply ignored it. After all, it considers the press as financially illiterate so what does it think of the rest of us Guyanese?

It is almost pointless identifying all the weaknesses in the report itself, in the scope that it appears to consider adequate to make a proper conclusion, and in its findings. We note that the Office of the Prime Minister which spent one hundred million dollars in 2006 does not warrant any mention in the report, but what about the Privatisation Unit/NICIL as the Ministry of Finance chooses to call it, and which does not account for hundreds of millions of dollars it collects and spends unlawfully year after year. There is not a single mention of this fundamental breach of the constitution that ranks and rankles with the infamous Lotto Funds.

Yet in paragraph 325 the report finds space and time to commend the GDF for achieving a Nil balance on its salaries account for four of twelve months in 2006! That a failure rate of eight out of twelve in respect of this most elementary principle of book-keeping is regarded by the Auditor General as “commendable” is an indication that the bar set by the report for accountability is so low that it can cause even the walker to stump her/his toe!

The GRA
The report indicates a poor understanding of the laws and operation of the Guyana Revenue Authority by its failure to address some real and fundamental issues, and even when it does present some findings it is unable to put a meaningful interpretation on them. Take for example the section of the report dealing with Customs and Trade Administration. Eleven of the thirteen paragraphs deal with “Prior year matters which have not been fully resolved,” with the adverb seeming overly generous. The report appears oblivious to the several scams that take place in that division costing the state billions of dollars in funds which could have gone to reduce the prohibitive VAT and PAYE borne mainly by low-income taxpayers.

The story is not too different with the Internal Revenue Department, which according to the report has not taken steps to have all delinquent self-employed persons comply with the Income Tax Act, one of the reasons given for the merger of the tax-collecting agencies in 2000. The report tells us that there are 22,682 persons who have been identified by the GRA as self-employed, but it does not bother to tell us how many filed returns. There is no reason why the GRA with the technical, IT and legal professionals, and the enforcement and penal provisions at its disposal could not achieve a 75% filing performance. But let us assume a 50% rate of filing, the average tax collection per person is a mere $7,500 per month per taxpayer or the equivalent of about $50,000 per month of profit! Is it not time that the GRA prosecute those accountants and tax consultants who aid and abet the criminal act of tax evasion? I do not believe that any serious Audit Office and GRA would find this credible, but I am surprised that the report does not highlight it and give any indication of the steps proposed to deal with what is obviously a scandalous situation.

The QAII debacle and the preferential treatment of New GPC should have alerted the Auditor General to the need and the statutory requirement for a proper audit of the tax concessions given under various acts. The Auditor General would know that in the absence of Goods Received Records he could have applied alternative methods of testing the purchase of these items with a value in excess of $600 million, including obtaining from the supplier, the New GPC, copies of their invoices and delivery records. Failure to do this reflects very poorly on him.

The report ignores this and does not deal with the fact that the system of tax refunds is a joke and an injustice to the taxpaying public. And should the report have noted that there has not been a Board of Review for several years or that the last Chairman, Mr Brindley Benn, is not known to have any expertise in this crucial area? One only has to read some of the decisions coming out of the Board of Review of other Caribbean countries to recognize the calibre of persons who should be appointed to such a body.

Unreconciled
If one is serious about the finances of the country the two entities charged with managing and accounting for these funds – the Accountant General’s Office and the Ministry of Finance cannot be allowed to be the featured stars in this tragic-comedy of errors and incompetence. Many of the discrepancies highlighted (and not highlighted such as the requirement to submit to the National Assembly a mid-year report by August 30 each year), in the report can be traced directly to one or the other of these two entities. Only a sprinkling of examples is required to show the scale of the problem: no financial statements produced for audit in respect of the State Planning Commission for 1992-2006, $6.513 billion shown as advances from the Dependants Pension Fund Deposit Fund outstanding at December 31, 2006 could not be substantiated and the old Consolidated Fund bank account NO 400 not reconciled since 1988. And what has been the solution by the new breed of financial literati? Open new accounts and do not bother to reconcile those either. So you now have an untold number of bank accounts, most of which are not reconciled and 108 accounts which are listed as inactive.

Of the $16.5 billion available to Ministry of Finance, only $3.6 billion was spent, which reflects either incredible money-management skills or a hopelessly flawed budget process, which prior to his elevation as Finance Minister was under the control of Dr Ashni Singh as Budget Director. A loan of $2.617 billion from the International Development Association was placed into an account in December 2003 for “investments in human capital under the health and education sectors; (b) strengthening of public institutions and improvement of governance (c) expansion and improvement in the provision of basic services under the water sector; and (d) broad-based job-generating economic growth.” Laudable projects, all except that there have been no transactions on this account since and the country must surely be paying interest on that loan. This ignores the even greater price in the loss of benefits that would have been generated by implementation of the initiatives contemplated when the loan agreement was signed.

Not only are all the issues raised under the section dealing with the National Procurement and Tender Administration (paragraphs 108-122) and that dealing with the Integrated Fiscal and Management Accounting System (IFMAS) matters coming forward from previous years, but these are matters for which the Minister of Finance is responsible. Not only has the constitutional body, the National Procurement Commission, not been set up, but as we see from paragraph 116 of the report, the Minister of Finance did not insist that the Chairman of the National Board submit the annual report required by the Procurement Act on the effectiveness of the procurement process!

The AG’s opinion
Despite all the weaknesses, omissions and failures, the opinion expressed on the report is a mixed opinion involving one in which the Auditor General (ag) claims that “subject to” the massive errors and omissions some of the statements present fairly the financial transactions and positions on some of the accounts and statements, but in relation to others he could not form an opinion.

Among the former is that relating to the Receipts and Payments of the Consolidated Fund and Receipts and Payments of the Contingencies Fund. As an auditor who first entered a profession which I have practised in several jurisdictions since September 1974, I simply cannot see how a “subject to” opinion can be issued where there are such fundamental breaches of the constitution and other laws and where billions of dollars are not properly accounted for. These would include funds collected by the Georgetown Public Hospital Corporation, foreign missions, royalties, privatization proceeds and Lotto Funds.

And imagine that the government which has retained VAT funds from the consumers is unable to reconcile the majority of bank accounts and that the balance of $8.774 billion “represents the best available estimate of the cash position of the Government as at December 31, 2006.” Should this amount be $50 billion or $50? The answer is that no one knows for sure. The unfortunate remarks by our President referred to in the first two weeks of this analysis send the message that knowing how much money the country has is unimportant. The absence of control over the bank accounts appears to substantiate that belief.

Where do we go from here?
No useful purpose would be served by listing the many unacceptable conditions cited in the report. Suffice it to say that this report should be a wake-up call to all Guyanese and more particularly the parliamentary opposition and the government of the need to address an untenable situation. We keep hearing that scarcity of resources constrains the effectiveness of financial oversight, and we are now painfully aware of the persistent failures of the Accountant General’s office, the Audit Office and the Ministry of Finance. As previously mentioned these are the entities tasked with the responsibility of managing, accounting for and ensuring that the nation’s resources are adequately protected. Immediate reforms in the way they do business (and it is business) are needed. The first statement of intent would be the allocation of resources to enhance the capability of the entities. Despite all the cries of scarce resources, this report highlights the abuse and misuse of resources and the critical need for strengthening the capability of the three entities. If accountability is job number one, then the President as the Chief Accountable Officer must ensure that the Accountant General, the Auditor General and the Minister of Finance are given the tools needed to discharge their constitutional and statutory responsibilities.

The system requires the ministries and other government entities to respond formally by way of a Treasury Memorandum to the report of the Public Accounts Committee following its own review of each Auditor General’s report. When after several years of non-compliance by the PNC and itself, the government published the first such memorandum in 2006 there was much crowing, so it is troubling that the government has failed to respond to the last report done by the PAC. Taxpayers and citizens have a right to know the proposed measures to address the deficiencies in accounting, accountability and governance. Having done a mere superficial review of the report, as a taxpayer I am appalled at the way in which my taxes are spent. I would willingly pay anyone for advice on the legal recourse I have as a citizen and it is truly time for the country to wake up from the party which it financed to the tune of hundreds of millions of dollars and get serious.

Faced with this scandalous financial situation, the Public Accounts Committee has gone into recess, but it too needs to recognize that it cannot be business as usual. It needs to get the technical expertise to assist it in its work, and it needs a full-time secretariat in order to exercise its constitutional authority. It should call the Auditor General to discuss his report, the capability of his department and the glaring shortcomings that have surfaced as a result of his continued inability to carry out his constitutional mandate. Business Page can hardly wait to see whether the situation provokes as visceral a response by the President to correct the situation as was his reaction to perceived criticism of the report. It will be a true barometer of the seriousness of his administration about accountability.

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The Auditor General’s report for 2006 (continued)

Update
In the first part of this review (BP 24.8.08) of the Auditor General’s report for 2006 we examined the several statutory obligations of the Audit Office under the constitution and several other statutes. We noted that the office has failed to carry out a substantial and perhaps a majority of its duties including the audit of entities and funds amounting to billions of dollars, noting specifically the Sugar Industry and Welfare Fund which has not been audited for over ten years. During the week I learnt that this fund amounting to approximately $1.25 billion was subject to a major fraud. This should cause an auditor not only to advance the statutory audit of the financial statements but to carry out a fraud investigation as well. While the Audit Act allows the Auditor General “complete discretion” such discretion surely does not extend to whether or not he can choose to carry out the audit of any entity, and the Public Accounts Committee needs to press him on this.

Two of the most important powers of the Auditor General are those of access to information to carry out the audits for which he is statutorily responsible and the freedom (and duty) to report to Parliament on such matters as he considers necessary. To wait for five years before inserting almost as a footnote to his report that such audits are outstanding, amounts to a dereliction of his duty. It would seem as well that there is a fiduciary obligation on the part of the National Assembly to withhold funds until the audits are brought up to date, as the government has done with certain other entities.

On the President’s statement that the bank balances are not real cash but a book entry, the records show that at the end of 2006 the government had over three hundred bank accounts of which one hundred and eight were dormant, but with balances amounting to hundreds of millions of dollars. These accounts were held exclusively with a third party and represent real cash running into billions of dollars. When the President misspoke in relation to the tax laws, the task of cleaning up fell on Winston Brassington. Now it is the turn of Finance Minister Dr Ashni Singh who has been mandated to educate those described by the President as “financially illiterate” even as the President mistakenly identifies the Minister as the authority for the appointment of the Auditor General. In fact the constitution confers that power on the President acting in accordance with the advice of the Public Service Commission, instead of logically that of the National Assembly through the Public Accounts Committee (PAC).

Independence
In this second column in the series we look at some of the other provisions of the Audit Act and their implications for professional quality work by the Audit Office. The first is the duty to act independently. The role of the Auditor General is primarily to provide Parliament, the people and donors with independently derived audit information about the executive arm of government. Parliament exercises its oversight role of the office by way of the Public Accounts Committee chaired by the opposition which from time to time laments its narrow mandate, while Parliament seems to think its own involvement ends with the handing over of the report by the Auditor General to the Speaker of the National Assembly, often several months late.

The Audit Office cannot act independently if it is strangled for funds by the Ministry of Finance, arguably its primary client. Parliament needs to be far more forceful in securing resources for the Audit Office which would be one way to secure its independence of the executive and ensure the effectiveness of the office’s work. The Auditor General’s independence is also compromised because his is an acting position, though as we shall see presently it would not be possible for the acting holder to be confirmed in the post.

This lack of independence was most tellingly demonstrated by a press statement in 2005 referring to instructions by the President to the Audit Office in relation to the long promised flood account. Perhaps not too many people are surprised that three years later the Audit Office has gone silent on this matter. More recently we saw the Auditor General being summoned to the Office of the President in connection with another Customs corruption scandal but will this report too never see the light of day despite the requirement of the law that all reports of the Auditor General be submitted to the National Assembly?

Conflict of interest
The second provision is the prohibition of any conflict of interest between the Auditor General’s official role and that in any private or professional entity or activity with which he is associated. The problem is not only that this limitation is narrowly defined but that it applies to the Auditor General only. The second paragraph of the audit report just published correctly assigns responsibility for preparation of the statements and accounts to the Minister of Finance and Head of Budget Agencies. Those who would wish to defend the situation whereby the wife of the Finance Minister in her role as number two and the most professionally qualified person in the Audit Office, is not bound by this narrow conflict of interest limitation simply do not understand how the audit profession works, what conflict of interest means and the damage done by its very appearance. Any such appearance will mean that the report coming out of the Audit Office will be viewed with scepticism.

Qualifications
The third point is in relation to what would seem to be the required qualification for the post of Auditor General. Could Parliament in enacting the Audit Act 2004 giving to the Auditor General the same conditions of service and benefits including tax free salaries as the Chief Justice have intended that the Auditor General would not have to hold a first degree or a professional qualification? That is the case of the current holder of the post of Auditor General whose audit responsibilities dwarf those of all the professional auditors in Guyana combined.

Depleted
The vacancy rate in the Audit Office averages about 50% with a considerably higher rate at the senior levels.

The website of the Australian Auditor General in discussing its role notes that to be seen to be competent, key stakeholders must view the Auditor General as being the right person for the job and must also have the means to acquire resources according to the skill requirements of the job to be done. Without these characteristics, the assurances of the Auditor General would certainly lack credibility, even if the independence of the office was not significantly compromised.

In his 2002 report, then Auditor General (ag) Mr B Balram referred to the “depleting staff situation in the Audit Office” as a result of which he could only adopt a selective approach in his audit. Consequently he warned against relying “upon the findings of his report to reflect the results of a comprehensive review of the financial operations of Government,” adding that he thought such a review desirable. While four years later the situation is now much worse, there is an absence of similar frankness by the incumbent leaving the uninformed reader with a false sense of security about the state of the government’s finances.

Basic
No wonder then that the Audit Office has chosen the most basic areas of cash and bank, purchases and stores and the maintenance of vehicle log books as his focus for the shortened audit report for 2006. This reminded me of a medical client some time ago who chided me for not paying enough attention to petty cash and postage stamps amounting to less than $5,000 but seemed far less concerned about whether his billing system which accounted for hundreds of thousands of dollars in revenue per month was effective! While Value for Money (VFM) audits are indeed very useful and necessary, there are not enough staff for the more routine functions involved, and many audits go undone for several years. Yet, the Auditor General is diverting his limited resources to set up a VFM Unit whose only progress to date “is presently in the initial stage of formulating its first VFM audit plan,” whatever that means in practical terms.

Sadly, the several limitations are reflected in the scope of his audit and the quality of the report which at times uses language more suited to a newspaper column than a professional report. For example, what must the reader assume from paragraph 6 (iv) of the report that refers to “The balances of 66 inactive bank accounts, of which eight had balances in excess of $100M.” It is standard practice that audit reports should not assume financial literacy and should as far as possible state actual values. And more than once the report gives the impression that the introduction of the new system IFMAS was done during 2006 – in fact this was introduced in 2004, and how too does the Auditor General explain his statement that IFMAS operates a single bank account when some 194 active accounts are maintained?

Trinkets and the wood for the trees
And in paragraph 8, the report repeats the “continued lack of reporting for all gifts to Ministries, Departments and Regions” as if we are talking about trinkets. In fact some “gifts” represent hundreds of millions of dollars and the Auditor General only needs to refer to successive Budget speeches and the newspapers to see some of the cases of huge sums of money. In one paragraph the report noted a UNDP grant of US$4.373M, but why not the others, not only out of a professional obligation but also so that readers can see the full cost of running the country and where the money comes from.

And in the same vein, how could the report not even mention the huge sums being collected by the Privatisation Unit/NICIL that are not being properly accounted for, or why the royalties collected from OMAI are not being deposited into the Consolidated Fund as required by the constitution? The value of special funds not accounted for and spent without any parliamentary approval has gone way beyond the infamous Lotto Funds despite the howls of protest over the years.

To be continued

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The Auditor General’s Report for 2006

Introduction
It is now established that the Report of the Auditor General was late by more than ten months. By law, the Auditor General is required to report “at least annually, and within nine months of the end of each fiscal year, on the results of his audit of the consolidated financial statements and the accounts of budget agencies in relation to that fiscal year.” It is not only that he has failed to do so, but he has also failed to report on several of the Budget agencies which have spent tens of billions of taxpayer and loan funds without any audit or accountability. In the next few columns, we will review the report not only for what it says but more importantly for what it should have contained but does not, and we shall make our own conclusions about the real value of the report to the people of Guyana.

We will bear in mind too that several months ago the acting Auditor General had promised the report no later than June 30 of this year and failed to say anything when that time came and went. We will, as space permits, look at whether the Auditor General has met his other obligations under the laws, among other things.

More sound than substance
One of the ironies of the 2006 report is that it is far less comprehensive than the report for 2005. Not that size alone matters but some valid reasons should have been offered for the downsizing of the report from 1,822 paragraphs in 2005 to 525 paragraphs in 2006, many of which are devoted to “Prior year matters that have not been fully resolved.” The size of the Guyana National Budget has expanded dramatically, state corporations formed under the Public Corporations Act and the Companies Act have increased the volume and value of transactions they carry out each year while legislation in 2003 and 2004 introduced new systems of accountability as well as new responsibilities of the Audit Office as it is now called.

Yet, the 2006 report which does little more than repeat the several failures highlighted in earlier reports has generated considerably more public discussion and interest, eliciting responses from the Ministers of Health and Finance, the Head of the Presidential Secretariat and his boss the President himself. In fact the statements from the latter two were in stark conflict with Dr Luncheon suggesting quite inaccurately that the closure of certain bank accounts was proving difficult, “fundamentally because of a lack of information and timely reconciliation.”

Perhaps the Minister of Finance who spoke after Dr Luncheon should have advised him that the closure of accounts has nothing to do with whether or not accounts are reconciled as any person who has held a bank account will attest! In fact closure actually helps with reconciliations since it brings an end to all business being conducted on that account.

‘Illiteracy’
But if Dr Luncheon’s statement was uninformed and misleading, it was the President’s contribution that truly caught the imagination and raised some parallel with his contribution to the debate on tax holidays for QA II. Attributing some of the findings in the report to factors ranging from financial ‘illiteracy’ to the previous government for perceived irregularities outlined in the 2006, President Jagdeo described the government’s failure to deal with Lotto funds in accordance with the constitution as a “technical issue,” and incredibly described the billions of dollars held in dormant accounts as “not real cash, it is a book entry…”

This is a matter with which the last Auditor General Anand Goolsarran had taken issue for several years and if the President were right – though he clearly is wrong – then each report for the past several years is deficient since dormant bank accounts usually represent cash confirmed as being held by a financial institution. What the President might have said is that there are possible explanations and controls to prevent the fraudulent use of these accounts, but without the benefit of this information one cannot determine whether the Auditor General was referring to confirmed bank balances or balances extracted from the accounting records. Past reports have been highlighting these same issues as far back as the nineties, and the accuracy of similar findings and comments were never questioned by any of the incumbent Finance Ministers, one of whom was the current President.

Where the President and his Finance Minister do have a point is in relation to outstanding advances drawn from the contingencies fund. Indeed normally a report would have identified the period for which the advances were outstanding, whether or not they were all proper charges on the contingencies fund, and would have highlighted the fact that many of these advances amounting to hundreds of millions of real dollars were made in the last week of 2006, including separate sums of $300 million each to the Ministry of Housing and the Ministry of Housing and Water, on December 29 and 30, respectively.

Why did the Auditor General not tell the nation the amount outstanding on the ten advances made in 2006 to the Ministry of Culture and Sport totalling $450 million dollars, or why in the space of seven days that ministry had to be advanced identical sums of $84.375 million?

Cabinet outreach and explanations
2006 was an election year in which all caution and rules were thrown to the wind, with a Cabinet outreach featuring outboard engines, food and other supplies funded by the state. Regrettably, the report is conspicuously silent on this or on any monies advanced to those like Omprakash Shivraj to get Guyana ready for World Cup Cricket.

Understandably there was no reaction to any of these omissions but the Guyanese public hopes that the Public Accounts Com-mittee (PAC), the body responsible for reviewing the reports from the Audit Office would raise the many questions which the report has failed to address.

And while the government, as indeed every citizen, has every right to express itself on any issue and to correct inaccurate reporting in the press, the established procedure for it to respond to the Auditor General’s Report is by way of a Treasury Mem-orandum following the review and report of the PAC. I believe that it is legitimate and necessary for any report by the Audit Office to mention that the government is in breach of the requirement of the Standing Orders of the National Assembly that this be submitted within ninety days of the PAC’s report. My information is that the last such memorandum was issued in respect of the 2001 and 2002 reports.

Dr Singh, the Minister of Finance, has challenged the report for not adequately reflecting explanations that would have been proffered by the government ministries and departments.

In fact I believe that the report was generous to a fault, accepting some of the most simplistic excuses offered by officials.

The report for example accepts the explanation by GINA that it breached the Procurement Act because it needed a minibus urgently! But the most glaring and arguably dangerous example not only of the acceptance of banal explanations but the apparent condoning by the Audit Office of a breach of the constitution is in relation to the Lotto Funds on which the report concludes that the unconstitutional expenditure from those funds “was within the National Sectors previously identified and in accordance with the guidelines for access to the Lottery funding”! Mr Sharma, if the thing is unconstitutional what can it accord with? No wonder then that Health Minister Dr Leslie Ramsammy could explain the breach by his ministry and the Georgetown Public Hospital Corporation in its purchase of drugs from New GPC as being in accordance with a cabinet decision.

The Audit Act
Under section 4 of the Audit Act, the Auditor General is the auditor of all public accounts defined in the constitution as including all central and local government bodies and entities; all bodies and entities in which the state has a controlling interest; all projects funded by way of loans or grants by a foreign state or organisation. All entities set up under that act are required to submit to the minister within 6 months of the end of the financial year a report including accounts of the corporation, which should be tabled in the National Assembly no later than three months thereafter. One such entity, GO-Invest, appears not even to know of this requirement!

Under the Companies Act all government companies have similar reporting requirements, but these too just ignore the law with impunity. Some of the larger active government companies are GuySuco, Guyana Power & Light Inc, Guyana National Newspapers Limited, Guyana National Shipping, GUYOIL, National Communications Network Inc and NICIL.

Audit responsibilities and non-compliance
Apart from its responsibility to audit the ministries and departments that come directly under the government the Audit Office is also responsible for auditing the Budget agencies listed in the Fiscal Management and Accountability Act, including the National Parks Commission which comes under the Office of the President, the National Trust, the Guyana Cooperative Financial Services, the Guyana Energy Agency, the Guyana Post Office Corporation, the Civil Aviation Authority, the Integrity Commission, the National Sports Commission and the Dependents Pension Fund. Another such entity is the Sugar Industry and Welfare Fund which controls close to $1.4 billion of real money for the direct benefit of the sugar workers but which has not been audited since 1996.

Indeed, instead of stating the status of the audits of all such entities the report simply identifies those that are more than five years in arrears! Moreover in respect of the backlog audits which are completed, the Audit Office does not report its detailed findings such as breaches of procurement laws, etc, but merely refers to the reasons for any adverse or disclaimer opinions given on the financial statements for the last year for which audits have been done. As a result we are completely in the dark about the Guyana Post Office Corporation which has not been audited since 1998.

Special functions
In addition to its report on the Public Accounts the Audit Office is required to submit to the Public Accounts Committee (PAC) within one month of each quarter a quarterly report on the performance and operation of the Audit Office and within (t1)4* months of the end of year an Annual Performance and Financial Audit Report. Under the Audit Act the PAC is required to appoint an independent auditor. There is nothing to indicate that any of these reports has been submitted or that the Audit Office has itself been audited.

There is a similar deadline and procedural requirement for the Auditor General in respect of special audits conducted by him. In other words the reports on his special audits of all the so-called scams that have taken place during the year should also be tabled in the National Assembly but while the 2006 report refers to twenty-three special investigations having been finalized in 2006, there is no evidence that the reports on these audits or investigations have been submitted by him for laying in the National Assembly.

Under section 37 of the Investment Act the Auditor General is required to carry out annually a procedural or process audit of incentives granted under section 2 of the Income Tax (In Aid of Industry) Act and to submit to the National Assembly for laying within six months after the end of each financial year the report thereon. No such report has even been laid nor is there any indication that the responsibility was discharged. If that was properly done then the concessions illegally granted to QA II and whoever else would have been exposed a long time ago and the revenues of the country protected.

Next week
The scope of the responsibilities of the Audit Office is wide and it requires as its head not someone in an acting capacity but a professionally qualified accountant who can act independently of the politicians. In next week’s column we will look at some of the challenges facing the office, review the report in some detail and offer our own view on how the findings could have been made more useful.

*(t1)Supposed to be section 43

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GO-INVEST – Investment and reality

Introduction
As we conclude the series of columns on the QA II privatisation, we turn our attention to the Guyana Office for Investment (GO-INVEST), an entity established in 1994 under the Public Corporations Act 1988 to replace GUYMIDA, an agency with similar objectives closed down soon after the change of government in 1992. GUYMIDA had operated a very structured process for incentives including tax holidays but as is so often the case we throw the baby away with the bath water and there is no documented evidence of the experiences, lessons and mistakes of that agency that would have avoided some of the failures we are now witnessing.  The functions of the GO-INVEST as set out in the Order creating it include the facilitation of investments though the identification of investment opportunities and providing profiles for such opportunities.

These functions were expanded in 2004 with the passage of the Investment Act that reposed in GO-INVEST responsibility for setting up and operating the Secretariat of the Investment Promotion Council (IPC). In fact it is that Act that placed GO-INVEST in the eye of the QA II storm since GO-INVEST is required to, “at least once annually, review and recommend to the Government alterations in the Priority Lists for Investment categories under section 2 of the Income Tax (In Aid of Industry) Act” – the section that allows the Minister of Finance to grant discretionary tax holidays and to “annually recommend to the Government alterations to the regime of fiscal incentives established for investment including incentives relating to tariffs and taxes, import duties and to export-oriented enterprises.”

Any amendments to the regime of fiscal concessions should therefore have emanated from GO-INVEST and the haste with which Bill # 14 was passed to restore wide-ranging discretionary concessions to the hands of the Minister of Finance was another case of the abrogation by the politicians of a function embedded in the law to be performed independently and professionally. The considerable reduction in the scope for discretionary concessions under a change in the law in 2003 was not only a condition of the multilateral financial institutions and donors but was a way to provide better and more transparent governance. That the status quo is being restored so soon after our exit from the IMF programme is surely not reassuring.

Confusion
My enquiries concerning this area of GO-INVEST’s statutory responsibility suggest complete confusion at GO-INVEST about whether or not some of its directors are even aware of, let alone, discharge this responsibility. It was simply unbelievable how difficult it was to obtain from that source a copy of the GO-INVEST Order and how confused persons are as to whether the functions of the IPC have been taken over by the National Competitive Council headed by President Jagdeo. We shall leave for later the accomplishments of that council, expenditure on expensive consultants, the usefulness of no less than six ministers sitting around discussing matters that have been fully ventilated and decided on more than a decade ago, and why we need to borrow $5.4 billion dollars on what, from occasional publications issued by the National Competitiveness Council, appears to be a complete waste of resources. Just think of the many better uses to which that money can be spent.

The executive head of GO-INVEST is Mr. Geoff DaSilva, a long-time PPP activist in Canada whose appointment as Minister of Trade ended with his replacement by Mr. Manzoor Nadir of the TUF. GO-INVEST’s acting chairman is Mr. Keith Burrowes who heads a number of other government controlled entities. Apparently because the government treated QA II principally as a privatization the role of GO-INVEST was secondary to that of the PU/NICIL headed by Mr. Winston Brassington. GO-INVEST did take a lead salesman’s role in representing the transaction and in language not quite suited to an investment promotion agency attacked “the very small cabal of self-appointed business leaders” who had called for an apology from President Jagdeo for his widely criticized response to business leader Yesu Persaud’s call for the rest of the private sector to be granted similar concessions as QA II. Repeating the language of the President, GO-INVEST described a statement by the Private Sector Commission as “reflecting ignorance of the privatisation framework.”

No head
While falling short of an apology, it must have taken some guts then for Mr. DaSilva at the PU/NICIL’s seminar on taxation to admit that “we made a mistake” in awarding tax holidays to two of QA II’s companies, an admission that none of the other players in the saga has so far had the courage to make. At the time of the seminar the misrepresentation of the $50 million per annum rent had not yet been revealed, nor was the claim about a textile mill, a misrepresentation that has so far gone unacknowledged by GO-INVEST, an agency that had described as “totally dishonest” an innuendo by the Private Sector Commission.

GO-INVEST has had no chairman for some time and the acting position is held by Mr Keith Burrowes, who is, among many other public offices he holds, the Chairman of the Guyana Chronicle, which was another entity cheerleading for the QA II deal. While the Guyana Revenue Authority is represented on the Board there has been no private sector representative since the withdrawal of Mr David Yankana several years ago on account of ill-health.

The dangers
Mr. DaSilva’s presentation at the July 29 Taxation Seminar emphasised the “investment projects of 285 companies totaling US$835M” between 2002 and 2008. He announced that these projects had attracted some 1006 concessions in the form of duty free concessions for machinery, equipment, vehicles and furnishings amounting to sixteen billion dollars between 2005 to June 2008. Mr. DaSilva’s paper did not offer any reason for giving the investment projects for one period while stating the incentives in the form of tax exemptions for a considerably shorter period. In fact not all of the 285 entities are companies and it would have been instructive for Mr. DaSilva to have indicated the value of the concessions granted to the self-employed and other unincorporated businesses that continue to deprive the country of billions of dollars of tax revenue each year. In effect these businesses get more in the form of concessions than they pay in the form of taxes or benefit they provide to the economy.

The public is understandably still concerned about the revelations of the QA II details but there is a bigger picture in which there has been exposed a massive failure on the part of key government agencies and officials to discharge a professional quality of coordination, due diligence and necessary follow-up work on concessions granted to investment projects. The entities are set up and officials are paid, often tax-free $US to do a professional job for the taxpaying public, not to act as servants to politicians.

Matching the numbers
GO-INVEST’s numbers have always attracted attention for their lack of support and in their 2006 Budget Focus, Ram & McRae commented that the GO-INVEST “seems to have its own measure of identifying projects, the investments made and the jobs created. This time [2006] it appears to have out-done itself with the minister’s statement that it [GO-INVEST] has facilitated nearly 140 private sector projects, representing investments of $68Bn which generated an additional 9,000 jobs.” Those numbers translate into an average of 65 jobs and an investment of $485M per project or $7.5M per job. Even the economic powerhouse China could not attract such investments! Focus had also noted that the Finance Minister had announced in his 2005 budget presentation that seventy-five investment projects had been facilitated by GO-INVEST which should have created 1,900 direct jobs and the firm suggested that it was unfortunate that the Minister in his presentation in the following year did not indicate how many of the 1,900 jobs were actually created.

Co-incidentally no investment or job numbers were announced in subsequent budget speeches.

Mr. DaSilva also told the seminar that only about 60% of the investments are notified or facilitated by Go-Invest. Adding the remaining 40% would put investments between 2002-2008 at US$1.4 billion or in private sector investment. How do these numbers match up with other data in the economy?

2001     2002      2003     2004     2005    2006      2007

Active employed (thousands)           121      120       115        115        117          117          118
Active self employed (thousands)     11        10           9               9               7             7            7
Taxes paid by Self-employed ($M)    725    778       887            993            919       1,030      1,243
Source of information: National Insurance Scheme & National Estimates

Mr DaSilva usually dismisses questions about Go-Invest’s numbers by questioning the effectiveness of the National Insurance Scheme but the GRA which actually grants concessions sits on his board in the person of one of its officials, some of whom have been sent on leave in relation to a high profile tax-evasion scandal. Are we to believe that the GRA is so generous and careless about the billions of dollars of concessions that it grants every year or that the NIS is still troublingly inefficient and expensively incompetent after sixteen years?

Taking a tax holiday
There is undoubtedly a high degree of underreporting by businesses to the GRA and the NIS and many Guyanese taxpayers including companies that are audited do not wait for tax holidays but take them, adding another dimension of “discretion” to them. But Go-Invest’s role is the promotion of investments not tax evasion, even as it expects the GRA to do a better job particularly since up-front concessions are given for investments that are often overstated. There is no single instance of the revocation of concessions or the prosecution of those businesses that provide false information to get concessions from the GRA.

Fanciful
A close examination of the investments for which concessions have been granted by the GRA on the recommendations of Go-Invest leads to questions about some of the information published by Go-Invest. Here are some examples obtained from comparing GO-Invest’s information with that contained in the financial reports of public companies and other verifiable sources.

Sterling Products Ltd is stated as having been granted concessions in 2004 for machinery, equipment and vehicles for an investment of $600M. According to the financial statements of the company the amount invested in 2004 and 2005 was $155 M.

The DDL subsidiary TOPCO is stated as having invested $800M in 2004 and 2005. In fact the bulk of the investment was done in 2003 while the total investment by all DDL subsidiaries in 2003-2005 was under $800 million.

Caribbean Containers Inc, another public company is shown as having invested $310M in 2004 and 2006. In fact, the company’s financial statements show capital expenditure for those years of $6.9M.

The same G&C Sanata Company Inc. that has been described by QA II as abandoned for fifteen years is shown as having invested $800 million in 2005 while CGX is shown as having invested $12 billion or US$60 million.

The same level of casualness appears with regard to private companies including clients of Ram & McRae whose investments in their books are nowhere close to those reported by Go-Invest, while in the case of the Omai/IAMGold/Bosai there seems to be evidence of double-counting with the payment by Bosai to IAMGOLD being shown as an investment.

Conclusion
QAII has been more than an embarrassment for this government. It has been a revelation of how government business is transacted, public assets are sold, tax concessions given away and the public is misled by, to use the words of Go-Invest “a very small cabal” of political functionaries and professionals who seem willing to compromise their professionalism to meet the objectives set by politicians. All of the key players involved, the President, the Minister of Finance, Cabinet, the Privatisation Board, PU/NICIL, Guyana Revenue Authority and G-Invest have been found terribly wanting.

The fact that during the revelation of this saga the law was changed to facilitate even looser action by these persons and institutions must be a great cause for concern and reinforces the view that legislation was introduced to legitimise the unlawful.

There is clearly a need to review the operations and mandate of each of these offices and functions with the requirement for considerably more rules-based decisions carried out in a system of proper checks and balances. Too much is at stake for the revenues, assets and welfare of the nation. The rest of society including the accounting profession needs to demand a greater say in these matters.

Next week we will look at the Auditor General’s Report for 2006.