Auditor General to reject Finance Ministry report
Posted on June 24th, 2017

By Niranjala Ariyawansha Courtesy Ceylon Today

The Auditor General’s Department is set to reject the 2016 Annual Report of the Ministry of Finance, reliable sources told Ceylon Today.

They added that the 2016 annual report of the Ministry of Finance was a balance sheet which had nominal and false figures in terms of debit and credit. The AG has declined to approve the report. The sources further said that the AG had informed the Ministry that such a report will lead to the loss of people’s trust in the government with regard to public finances. The AG has proposed the Ministry of Finance to submit only a financial statement in place of the annual report, Ceylon Today learns.

For example, a deputy auditor points out that although 6 per cent was allocated for education, only 40 per cent of the allocations were granted.

“There is clear reason for that. The treasury has no money. But the government hoodwinked the people by telling 6 per cent of the budget had been allocated for education although only 40 per cent of the allocated sum was actually granted,” he explained.

The official further said that the allocated money had been actually transferred to the departments in the months of November and December leaving no time to utilize them.

“Many public organizations told us that they had no time to show their performances because they received moneys behind schedule,” he further said.

AG Gamini Wijesinghe vehemently criticized the actions of the Ministry of Finance on a number of times in the recent past. He pointed out that on several occasions the Ministry of Finance had released erroneous data on the economy of the country.

Consequently, Finance Minister Ravi Karunanayaka reprimanded the AG. The 2016 annual report of the Ministry of Finance was compiled when Ravi Karunanayaka was the Minister.

However, without rejecting the annual report, the AG stated that he might not express an opinion about the 2016 annual report. In this backdrop Parliament was deadlocked last Tuesday over the Finance Ministry’s 2016 Annual Report with the Janatha Vimukthi Peramuna (JVP) insisting it was incomplete as the AG had not been given the necessary documents to make independent calculations presented in the report.

JVP stance

JVP MP Anura Kumara Dissanayake rejected the 2016 Annual Report, claiming that the tabled document was incomplete as it was without the audit opinion of the AG, he told the House.

Reading out the AG’s comment, which was annexed to the Annual Report, Dissanayake insisted: “As this is an incomplete report Parliament should reject it and send it back to the Ministry to include the AG’s opinion. In the absence of proper information he has refrained from making an audit statement.

“We all know that the AG’s opinion validates any annual report. But this report tabled today has no such opinion. So Parliament should only accept a complete report, especially from the Finance Ministry that is responsible for the management of public finances. This is an incomplete report. The AG has also mentioned that he will send in his opinion separately to the Parliament in accordance with Article 154 (6) of the Constitution. So it could be included in the report and resubmitted. We should consider this as a report tabled but incomplete.” Dissanayake stated.

However, in response to our query, an internal source of the AG’s Department said that the statement “I would not express my opinion” was actually the opinion of the AG. This statement meant that the AG had declined to comment, the sources further said.

Responding on behalf of the government Leader of the House Minister Lakshman Kiriella criticized the conduct of the AG. “If any Ministry did not furnish the required information, the AG should have informed Parliament about it. The main fault lies with the AG.

The report became incomplete because of him,” he added.

However, MP Dissanayake, rejecting Minister Kiriella’s claim, said it was wrong to accuse the AG and the government should not expect the AG to give his nod to whatever document sent to him without proper scrutiny.

Speaker Karu Jayasuriya referred the report to the Public Finance Committee to make a decision, adding that he does not wish to comment as to “who is right and who is wrong.”

Sri Lanka’s fiscal situation has been thrown into chaos by the AG, claiming that the national debt has been understated in 2016 as 79.3 per cent of Gross Domestic Product (GDP) by undercounting some of the loans, but actual liabilities are 83.3 per cent of GDP in the Finance Ministry Annual Report.

It is understood when studying the report that the AG has outlined a number of reasons for rejecting the 2016 annual report of the Ministry of Finance.

Even though the financial statements had been named as the financial statement of the republic, those were limited only to the transaction of the Consolidated Fund. As such the transactions and assets and liabilities of the provincial councils, local authorities, public enterprises and the other institutions owned by or under the control of the government had not been included in these financial statements. It is further observed that in terms of section 15(1) of the Fiscal Management (Responsibility) Act, No.3 of 2003, and the Ministry of Finance should publish the final budget position report.

The accounting deficiencies outlined by the AG with regard to the 2016 Annual Report:

According to the financial statements, the balance of credit of the government as at 31 December 2016 was Rs 8,793,959 million. The AG has pointed out that the balance is Rs 826,091 million deficient.

Accounting policy

The accounting policy in terms of the treasury bonds were amended in 2016. Accordingly, the balance of the treasury bonds as at 31st December 2016 was stated at Rs 487,061 million short.

The balance of the loans payable by the government as at 31 December 2016 relating to 7 loans agreements entered into by the government with foreign lending institutions amounting to Rs 332,305 million had not been included in the annual report.
The loan of Rs 7,550 million obtained by the Ministry of Defence from 4 state and private banks for the construction of the building of the Secretariat of Personal Identification had not been included in the financial statements.

Further, the comparison of the closing balance of foreign loans appearing in the financial statements with the 854-1 report of the Department of External Resources revealed a difference of Rs 1,505 million in the balance of 8 loan agreements.

B. According to the financial statements presented to audit, the receipts of foreign loans and payments of foreign loans during the year under review amounted to Rs 574,249 million and Rs 145,119 million respectively. Nevertheless, the test check carried out in that connection revealed that the receipts of foreign loans and payments of foreign loans had been understated by Rs 8,945 million and Rs 5,848 million respectively.

C. According to the financial statements the government had granted sub-loans amounting to Rs 169,547 million to various government institutions. The test check carried out in this connection, it was observed that the value of sub-loans had been understated by a sum of Rs 12,790 million in the financial statements.

D. According to the financial statements, the value of government investment in the public enterprises amounted to Rs 526,907 million whereas according to a test check, it was observed the net value of the investments had been understated by the Rs 29,140 million in the financial statements.

Even though the capital contribution to the Sri Lankan Airlines had been shown as Rs 55,388 million in the financial statements, according to the direct confirmation, that had been confirmed as Rs 51,157 million. As such it had been overstated by Rs 4,231 million in the financial statements.

Even though the capital contribution in the Ceylon Electricity Board (CEB) had been shown in the financial statements as Rs 269, 324 million, according to the direct conformation that had been confirmed as Rs 302, 695 million. Accordingly, that had been understated by Rs 33, 371 million in the financial statements.

E. According to the financial statements, the liabilities of the government (except public debt) as at 31 December 2016 amounted to Rs 207,514 million. However, a test check in this connection revealed that the liabilities had been understated by Rs 18,431 million in the financial statements. But it had been stated in the preparation of these financial statements a test check revealed that the accrual principal had been followed in the accounting for the creditors amounting to Rs 16,496 million under the lease. As such, it was observed that there was no uniformity in the preparation of the financial statements. F. According to the financial statements presented to Audit, the Public Revenue for the year under review amounted to Rs 1, 698,755 million and the following matters were observed during the test check carried out in this connection.

In terms of the Finance Act, No. 10 of 2015, every person who is engaged in the business of casinos should pay a sum of Rs 1000 million as one off levy in respect of each casino and that it should have been paid on or before 15 November 2015. Even though Rs 3,700 million out of Rs 4,000 million was received as at the date, it had not been disclosed in the financial statements.

Total arrears of revenue

The total arrears of revenue of the Department of Inland Revenue as at 31 December 2016 consisting of Rs 182,078 million being in defaulted taxes recoverable as at 31 December 2016, Rs 113,219 million the penalty thereon, both totalled Rs 295,297 million.

Similarly the arrears of revenue as at 31 December 2016 of the Department of Excise amounted to Rs 2,545 million. As such the total arrears of revenue of the two institutions as at 31 December 2016 amounting to Rs 297,842 had not been disclosed in the financial statements.

Even though the General Treasury had paid the interest payable by the Cooperative Wholesale Establishment, a sum of Rs 3,778 million it had not been brought to account in the Treasury books.

Action had not been taken for the write off of the loss of Rs 400 million in the year 2014 in the sale of 82 motor vehicles purchased for the Commonwealth Heads of Government Conference and that amount had been further included in the suspense account of the financial statements.

Non-compliances with Laws, Rules and Regulations

According to the financial statements for the year under review, the estimated budget deficit amounted to Rs 1,487,799 million and that represented an increase of Rs 313,819 million or 27 per cent over the preceding year.

According to the financial statements for the year 2016, the actual budget deficit amounted to Rs 666,139 million and that is a decrease of Rs 821,660 million from the estimated budget deficit. The actual budget deficit of the year under review amounted to 5.63 per cent of the estimated GDP. Accordingly, the budget deficit had exceeded the 5 per cent specified in section 3(a) of the fiscal Management (Responsibility) (Amendment) Act. No.15 of 2013.

According to the fiscal Management (Responsibility) Act. No.3 of 2003 as amended by the Fiscal Management (Responsibility) (Amendment) Act, No. 15 of 2013, the total liabilities of the government should not exceed 80 per cent of the GDP. According to the financial statements for the year 2016 the total liabilities as at 31 December 2016 amounted to Rs 9,864,512 million and that as compared with the estimated GDP of the year 2016 amounting to Rs 11,839,000 million represented 83 per cent. As such it was observed as an excess on the maximum limit on the liabilities as specified in the Fiscal Management (Responsibilities) Act.

The above liabilities do not include the value of the guarantees valued at Rs 563, 337 million issued to the banks for the loans obtained by the Public Enterprises on the General Treasury guarantees.

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