National Audit Act; Insights and Look Ahead
Posted on October 22nd, 2018

By Dr. Chandana Jayalath, Senior Lecturer, University of Vocational Technology

The National Audit Act came into effect 3 months ago after 23 amendments. A long felt need is an Audit Act in an ‘expanded’ model to provide for the high-handed powers, duties and functions of the position of ‘Auditor General’. As envisaged by those who had a big hope on curbing corruption, making the government officials accountable to the decisions and actions is indeed imperative. However this Act while providing for the establishment of an entity called Audit Service Commission still covers the traditional themes instead of how and what the people truly expected. As usual, the Act specifies that the role of Auditor General; to audit all income received to the Consolidated Fund and all expenditure from the Consolidated Fund; ascertain whether the moneys shown in the accounts of auditee entities as having been disbursed were legally available for purposes to which they have been applied for; determine whether the expenditure confirms to the authority which governs it and in each audit, examine the income, expenditure, transactions and events. The Auditor General shall be responsible to the Parliament in carrying out the provisions of this Act also as customary.

One of the salient features in this Act is that the Auditor-General ‘may’ examine any matter relating to an auditee entity ‘brought to his notice’ by any member of the public in writing along with substantial proof of the matters asserted, and report thereon to Parliament again. However the Auditor General is not required to provide for any feedback as to what kind of actions taken to stop any given corrupt activity. In other words, he is not publicly accountable. Where there are no auditing standards specified in the Sri Lanka Auditing Standards for performance audits, environmental audits, technical audits and any other special audits, the newly set up Audit Service Commission ‘may’ by order published in the gazette, specify the provisions of the international standards of the Supreme Audit Institutions which shall apply to such audits, with necessary amendments to suit local requirements. The Auditor General will inspect accounts of any auditee entity including treasuries and initial or subsidiary accounts of such auditee entities; require that any accounts, books, papers and other documents which deal with or form the basis of or is otherwise relevant to the transactions to which his duties extend, shall be sent to such place as he may appoint for his inspection. He can question or make such observations as he may consider necessary, from the Chief Accounting Officer of the auditee entity and call for such information as he may require for the preparation of any account or report.

The Act is clear in that the Auditor General is to ensure that the set of financial statements presented for audit by the auditee entity is in accordance with the applicable financial reporting standards; have been designed to present a true and fair view of the affairs of the auditee entity for the year under review; is consistent with the preceding year; and includes any recommendations made by the Auditor-General in the previous year. The Auditor-General or any person authorized by him in carrying out an audit shall inspect accounts of any auditee entity including treasuries and initial or subsidiary accounts of such auditee entities; require that any accounts, books, papers and other documents which deal with or form the basis of or is otherwise relevant to the transactions to which his duties extend, shall be sent to such place as he may appoint for his inspection; question or make such observations as he may consider necessary, from the Chief Accounting Officer of the auditee entity and call for such information as he may require for the preparation of any account or report.

The Auditor-General shall table in Parliament the Status Report of every auditee entity, within nine months after the end of each period of three financial years. This report shall include major deficiencies identified, recommendations made by him and preventive measures taken by the auditee entity and the position thereon as at the submission of the report to the Parliament. An auditee entity shall fulfill any requirement of the Auditor General or any person authorized by him, in the performance and discharge of the duties and functions under this Act. Any person who fails or refuses to furnish any information, document, explanation, report or material when requested to do so within a period of not less than twenty one working days from the date of receipt of such request; refuses or fails to nominate a person conversant on the subject, to appear before the Auditor-General or any person authorized by him, when requested to do so; makes any statement or submits a document to the Auditor-General or any person authorized by him knowing it to be false or misleading; resists or obstructs the functions and duties of the Auditor-General or any person authorized by him commits an offence and shall on conviction after summary trial by a Magistrate, be liable to a fine not less than ‘five thousand rupees’ and not more than ‘twenty five thousand rupees’. This is no sense.

Any person convicted for an offence under the provisions of this Act shall not be precluded from being punished for any other offence committed in the process under any another written law. No liability, whether civil or criminal, shall attach to the Auditor-General, any officer of the Sri Lanka State Audit Service, any officer of the National Audit Office or any other person assisting in the discharge of the duties of the Auditor-General as referred to in section 9(1)(a), for anything which ‘in good faith’ is done in the performance or exercise of any function or power imposed or assigned under the provisions of this Act. Good faith is all about sincerity of intention and it is purely a subjective matter.

Under Article 153A (1) of the Constitution, an Audit Service Commission will be appointed to ensure the independence of the Audit Commission. This Commission will consist of the Auditor General and four other members appointed by the President on the recommendation of the Constitutional Council. A new Audit Office is also sanctioned by the new Act, to assist the Auditor General to discharge his duties and responsibilities. The institutions which will come under the AG’s scrutiny will include all Ministries, Provincial Councils, public corporations, Commissions constituted under the Constitution or a Special Presidential Commission of Inquiry; the Presidential Secretariat; the Office of the Secretary General of Parliament or a company registered or deemed to be registered under the Companies Act in which the Government or a public corporation or a local authority holds fifty percent or more of the shares of that company.

As we all know, auditing encompasses a wide array of functions. Construction auditing is in particular keen on investigating overcharges if any for labor and materials, overpriced change orders, why and how for re-work, lost incentives and credits, failure to deliver contracted scope and charges for non-allowable costs. Audit is not just looking for cost recoveries or overbillings, but also provides process improvement recommendations for the project management team. In fact, there are several key risk areas that lend themselves to unnecessary costs that effect overall performance. Auditing function is to provide independent and objective assurance that the public money is handled appropriately. Amongst the benefits are early detection of non-compliance, prevention of abusive behaviors, minimize the I forgot” and lost document syndrome. Detecting frauds and errors along with the identification of misrepresentation of records, check on accounting functions with the analysis of bills and records, identifying information gaps and omissions to check accurate management of the accounts, verifying different costs and expenses to ensure their justified investment, and finally reporting on compliance with policy and procedures are fundamental to any auditing function. This task is not that simple particularly where the ‘technicalities’ or ‘technologies’ have been involved.  Tender invitations and bid proposals, tender addendums, contract amendments, offers and MOUs, contract document, incoming and outgoing correspondence, field notes, field visits, and interview findings, process and procedure manuals, protocols and guidelines, legal and financial instruments, internal logs and inventories, technical and financial reports, risk and contingency reports are a couple of key inputs integral to this important function at all times.

On the foregoing context, the Audit Commission has to be responsible for all the auditing in the government at the end of the saga. At a juncture like this, policy borrowing from other states could at least be most beneficial; for instance, it would be worthwhile to examine and see how the mechanisms of Audit Committees in other countries operate and then apply it to our own circumstances. It is of no harm of visiting what is happening outside our domain at all times. I would say, an inspection of external mechanisms is an important constituency. In the Middle Eastern countries, there are expatriate quantity surveyors who are experts in technical auditing. This is again, hardly anything being discussed in the media about the role of quantity surveyor in technical auditing. At a time where bribery and corruption are facing harsh penalties, the government must also take measures to prevent it from reoccurring, and in that regard, this Act should have essentially served as a crucial piece of legislature.

Notwithstanding, this Act vests the authority to impose surcharge back in the Chief Accounting Officers (Ministry Secretaries/Department Heads), not the Auditor General. In cases where the CAO has been implicated, the power to impose the surcharge lies with the Treasury Secretary. A Surcharge Appeal Committee, not less than five members, with experience in the fields of auditing, law, and public finance management, will be appointed by the Constitutional Council to hear and determine appeals by any person against whom a surcharge has been imposed. The surcharge can be imposed against any person who is responsible for the deficiency or loss, either jointly or singly, followed by a formal disciplinary action by the Disciplinary Authority or a judicial process. The Surcharge Appeal Committee will be empowered to allow the appeal, amend, alter or vary the decision or disallow the appeal.

Once the law is enacted, every public corporation or company in which the Government or a public corporation or a local authority holds fifty percent or more of the shares will be required to include in its annual report the report presented by the Auditor General to the Chairman of such an institution, the performance report for the relevant year, annual audited financial statements and a future projection report, based on sustainable development. This may include details of activities to safeguard the environment and mitigate any negative impact on the environment and where necessary include environment and disaster impact assessment analysis.

In a nutshell, the task of the National Audit Office is to control the reliability and authenticity of the financial statements as well as to provide the Parliament with reliable and objective information. The National Audit Office should therefore be independent in performing its operations.

Article 43 is to deal with influencing. Article 44 states that personnel responsible for deficiency/loss shall not be deemed to be guilty of such offence if it was found to be committing without knowing. Other offences deserve Rs 100,000 or one year imprisonment or both (Article 45). As per Article 46, no one is to be precluded from not being punished for any offence committed under any other law of Sri Lanka. Part IV deals with imposition of surcharge by the Audit Service Commission and Chief Accounting Officer is to follow up notice and initiate disciplinary action, decision and communicate. Appeal Procedure has been cited.

Under circumstances, the National Audit Act has three key provisions, namely the power of surcharge to impose personal financial responsibility on individuals who have caused financial loss to a State entity through fraud, negligence, misappropriation or corruption, the power to examine bank accounts in which the Auditor General believes that monies belonging to a State entity have been fraudulent, irregularly or wrongfully deposited and an independent budgeting mechanism designed to safeguard the independence of the prospective National Audit Office. If the foregoing is to significantly strengthen fiscal accountability in the public sector, there must be some properly laid rendezvous. Of them the social audit and whistleblowing take a pivotal role. Corruption often goes unchallenged when people do not speak out about it. Witness accounts offer invaluable insights into corruption, and are powerful tools in the fight against it. From exposing multi-million dollar financial scams to dangerous medical practices, whistleblowers play a crucial role in saving resources and even lives. But in many instances, blowing the whistle can carry high personal risk – particularly when there is little legal protection against dismissal, humiliation or even physical abuse. Controls on information, libel and defamation laws, and inadequate investigation of whistleblowers’ claims can all deter people from speaking out. Whistleblowers are less likely to report workplace misconduct when their employers do not provide clear internal reporting channels. And in some settings, whistleblowing carries connotations of betrayal rather than being seen as a benefit to the public. Ultimately, societies, institutions and citizens lose out when there is no one willing to cry foul in the face of corruption.

Corruption results in projects that are built to unsafe designs or that use dangerous construction methods, equipment, or materials. Quite simply, corruption kills. Corruption kills not only because money intended for the poor ends up in the pockets of corrupt officials. It kills because the bribes set in motion a chain of harmful events—the selection of unqualified contractors; the gross inflation of costs; the failure to complete work; the delivery of substandard goods, or too often, of nothing at all—that hamper development and add to unproductive debt. In fact, corruption and its progeny of fraud, waste, abuse, neglect, errors and omissions are now widely acknowledged to be the single greatest impediment to the development process. One final remark! Corruption needs to be seen in terms of the full scale of the human misery that it creates.

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