Govt’s books in bad state
GOVERNMENT’S FINANCES are in a mess, based on the findings of Auditor General Leigh Trotman.
In his 2012 report laid in Parliament last Tuesday, the country’s chief auditor emphasized that Government’s financial position could not be verified by his Audit Office as a result of unsubmitted accounts by many Government agencies, non-compliance with international public sector accounting standards (IPSAS), wastage, huge cash discrepancies and a range of errors.
Trotman, who examines Government’s main accounts and reports on failures by agencies to observe enactments and other laws, stated in the 128-page report that audits of key Government entities were in arrears as a result of poor accounting, adding that “the submission of accounts long after the due period often leads to problems in finalizing the audits. This is contrary to statutory requirements and can create an environment where fraud can thrive and remain undetected”.
Stressing the need for an urgent examination of Government’s system of accounting, which in his view did not adhere to IPSAS, the Auditor General said Government had adopted IPSAS to enhance the quality and transparency of public sector financial reporting while strengthening confidence in the sector’s financial management; but the key element of transitioning from a cash-based to an accrual-based system of accounting since April 2007 had not been achieved.
As a result, revenue for the Inland Revenue Department, for example, could not be verified by the Audit Office since the department was still recognizing revenue when cash is received rather than when it is earned.
Therefore, according to Trotman, “no audit assurance could be placed” on the department’s revenue figure as shown in the Treasury’s consolidated financial statements.
Agencies guilty of unaudited accounts include the National Insurance Fund, whose audit is eight years in arrears; Rural and Urban Development Commission, four to five years in arrears; Queen Elizabeth Hospital; Barbados Water Authority; National Conservation Commission; the National Council on Substance Abuse.
Regarding financial discrepancies, the report highlighted the Public Enterprise Investment Fund (PEIF) which was repealed by Parliament three years ago, and whose resources were due to be transferred to the Consolidated Fund.
The report stated: “At March 31, 2011, the balance in the PEIF bank account had been transferred to the Treasury account. However, as at March 31, 2012, other assets totalling $340 million had not been transferred to the Consolidated Fund as required.”
Numerous errors involving refund cheques printed for taxpayers were also reported, and these included duplication of cheques, overpayment of refunds and incorrect assessments.
“There were a number of cheques sent to taxpayers with errors and this was evidenced by a voluntary return of $326 028.51 by taxpayers who were overpaid. Not all taxpayers would have voluntarily returned cheques so it is unlikely that all overpayments would have been recovered,” the report added.
However, after this money was returned to the Inland Revenue Department, the monies deposited into the bank were reported to be $73 000 less than what had been received.
“It is recommended that the department investigate the shortfall of $73 066.86 between monies received and deposited, and take corrective action to prevent a recurrence,” wrote the Auditor General.
Loans to individuals and agencies by Government were recorded as $300.4 million, but the report showed a discrepancy in a loan to Barbados Tourism Investment Inc. (BTII) where, in Government’s financial statement for 2011-2012, a figure of $141.5 million with accrued interest of $19.3 million was reported as an advance to BTII.
“This figure had previously been reported as $235 million but was reduced . . . during the 2010-2011 financial year. The Audit Office had requested an explanation from the Treasury on this matter but none was provided,” Trotman said, adding that for some years his office had commented on “the absence of clear trails on the $235 million”.
Another loan, $2 million to the Southern Golf Club, was reported to have “no terms and conditions agreed upon by the parties involved” and no action had been taken to finalize this agreement. The money was transferred to Southern Golf in 2009.
He therefore recommended that “Government avoid situations that cast doubt on the transparency of its financial transactions”.
Also of interest was the write-off of much of the debt owed to Government by Hotels & Resorts Ltd, known as GEMS. After some $145 million was advanced to GEMS in 2002, payable over 20 years with repayment scheduled to commence in June 2006, a large portion of the debt was written off and the outstanding balance as at March 31 last year was $85 million, the report stated.
The haunting spectre of Barbados’ ever rising debt also raised its head in the report, with the Auditor General noting that Government debt, as recorded by the Treasury, had moved from $7.9 billion to $8.6 billion – an increase of $646 million in a year. He explained this had been due mainly to increases in local loans, treasury bills, and borrowing from the Washington-based Inter-American Development Bank.
The loss of scarce Government funds was also highlighted as the Auditor General pointed to wastage in the Barbados Drug Service and failure to collect huge amounts of land-tax arrears, which now stand at $176.7 million as a result of 36 393 offending landowners.
According to Trotman, no strategy had been submitted by the Land Tax Department to collect the arrears; 39 plots were submitted for notice of sale, but none was auctioned. He therefore recommended a compliance unit to ensure timely collection of arrears, but the department said a compliance unit would only be effective on those who had agreed to pay arrears and had reneged.
The department also said it was unable to complete the arrears collection process because the lien of its debt lies on the land and not on the individual, and because the department had lost the services of its legal assistant who mainly dealt with property sales but no replacement seemed likely in the current economic climate.
“But we continue to issue notices and will use power of sale where appropriate,” the department said in a statement in the Auditor General’s report.
The report also noted that some statutory entities were doing little or nothing to rectify the situation where former employees were getting pensions to which they were not entitled.
For the second year, the report mentioned but did not identify statutory corporations and state agencies that were paying non-contributory and National Insurance Scheme (NIS) pensions to former employees, contrary to the law that restricts people who entered the Civil Service after September 1, 1975, to one pension from the NIS.
To date, little action has been taken by statutory boards to rectify the situation, the report said, noting this had “resulted in numerous persons being overpaid for a number of years”.
“While the Treasury has corrected numerous cases of overpayment involving officers in central Government, the directorates of statutory boards seem unable or unwilling to rectify this,” Trotman added.
But perhaps the Auditor General’s harshest criticism was against the understating and overstating of figures in Government’s 2011-2012 financial statements, as he warned of the likelihood of fraud, undetected error and misappropriation of funds.
“There was no supporting documentation for accounts receivable of $600 million. There were also inadequate supporting schedules in respect of capital assets of $1.8 billion,” Trotman wrote, pointing to contingent liabilities which contained “several errors” that resulted in their being understated by $28 million as at March 31 last year.
Agencies listed in this regard included the Barbados National Oil Company, whose contingent liability was recorded at $89 million but the Auditor General confirmed to be $118.7 million – an understatement of $29.7 million; National Terminal Company Ltd whose contingency liability was overstated by $7 million, Collections and Recoveries Ltd overstated by $5.5 million, and Caves Of Barbados understated by $598 000.
Trotman also noted that the $154 million owed to the University of the West Indies was “not listed as a liability on the financial statements as required”, which resulted in Government’s liability on the consolidated financial statements being “considerably understated”.
In summary, the Auditor General said, “In my opinion the financial statements presented for audit did not, in all material aspects, fairly represent the financial position of the Government of Barbados as at March 31, 2012.”