COPE calls to improve auditing mechanisms of public enterprises

Inadequate auditing and fiscal discipline in public sector enterprises has left large sums of state funds unaccounted for, according to the findings of the Committee on Public Enterprises (COPE).

In one instance highlighted by the COPE, the Sri Lanka State Plantations Corporation obtained advances from brokers without coming to an agreement over a specific interest rate, in order to cover a deficit of between Rs.1015 million. The corporation subsequently paid an interest of Rs.15.9 million and Rs.16.6 million in 2010 and 2011, respectively.

Additionally, the committee highlighted a Rs.1.54 million difference between financial statements and ledger accounts, a Rs.23.5 million bank balance, which had not been taken into final accounts and a Rs.32.2 million error in the corporation’s trade debtor balance.

Responding to the COPE inquiries, the corporation admitted that all cases were a result of shortcomings in the preparation of final accounts.

The committee also inquired into a loss of Rs.7.81 million that occurred due to an act of fraud committed in the sale of 20,379 kg of tea at Kelabokka Estate.

The case is currently being investigated by the Criminal Investigations Department and Attorney General’s Department.

Meanwhile, in the case of the Co-operative Wholesale Establishment (CWE), evidence relating to the balances of Rs.5.48 billion worth of accounts had not been submitted for audit, while only two Audit and Management Committee meetings were held in 2012.

The CWE cited the unavailability of necessary documents in order to prepare final documents as leading to its failure to produce information.

In that context, the COPE advocated immediate steps be taken to strengthen auditing and internal audit systems of public sector enterprises since many were found to lack staff and resources to do so.

“An effective internal audit will secure the financial accountability of the institution and reduce the work load of the Auditor General. Furthermore, the internal audit could timely reveal information about fraudulent acts and the errant officers/employees could be dealt with in a timely manner,” the COPE said.

The COPE went on to reiterate the importance of effective financial control by ministry secretaries in this regard.

“It is our observation that the automatic controls of public finance namely the Appropriation Act, Fiscal Management (Responsibility) Act, Financial Regulations, Treasury Circulars, Public Administration Circulars, etc. by themselves cannot ensure financial discipline.”

“We reiterate with emphasis, the fact that constitutional responsibility for financial controls rests mainly on the Chief Accounting Officers, (Secretaries to Ministries) who are the Constitutional link between the Legislature and the Executive,” the committee stated.

Better salaries to attract professionals

In addition to advocating strengthened processes, the COPE went on to call for improved remuneration packages in the public sector in order to attract professionals to key positions, thereby improving performance.

“It goes without saying that the professionals cannot be either recruited or retained with the existing salary scales in the public sector. Because of this situation, certain institutions had been compelled to recruit personnel to the high ranking posts on contract basis, which leads to a serious problem with regard to the responsibility and the accountability of those personnel.

The Treasury is therefore recommended to take immediate action to raise the salaries and other remuneration of these posts to avoid any possible collapse of the public sector.”