20A Critics underscore the repercussions of Eroding AG’s independence

Auditor General’s Office

• The private external auditors do not carry out performance audits, but only the income and expense
• According to SLASA President, the 18th Amendment enables the AG to audit only the accounts of these Private Limited Companies, but not performance audits
• According to Ambanwala, the powerful Audit Service Commission was established under Article 153 and 154 of the Constitution
• Through the 19th Amendment the AG received the powers to recover state funds swindled by Local Government authorities

The anticipated plan to curtail the scope of the Auditor General’s duties and functions through the proposed 20th Amendment to the Constitution, is aimed at allowing politicians and their cronies to misappropriate state funds to their whims and fancies says the Sri Lanka Audit Service Association.

Before the 19th Amendment was passed, the Auditor General’s (AG) Department was barred from carrying out audits in 117 Public Limited Companies which are registered under the Companies Act No: 7 of 2007. The Government has invested more than a trillion rupees in these institutions, but the reason to prevent Government audits being carried out through the proposed 20th Amendment has raised concern among law abiding citizens of the country. 

“After the AG’s Department was vested powers through the 19th Amendment, we were able to bring to light how rampant corruption had taken place in some of these 117 institutions,” a very senior official at the Auditor General’s Department told the Daily Mirror on condition of anonymity.

The draft proposal to the 20th Amendment has drawn strong protest from the Sri Lanka Audit Service Association (SLASA).

According to SLASA President Prasad Prasanna the final accounts of all these companies, registered under the Companies Act No: 7 of 2007, were earlier audited by private external audit firms. These audit firms have in many cases not followed the procurement process, checked the Board of Directors’ involvement in scams nor any other process to find out how the funds have been spent. “When State owned companies, in which the Government is the main shareholder, are audited by private entities, the reports are not required to be submitted to parliament. This would undermine parliament’s financial oversight. It was for this reason that Article 154 (1) of the Constitution was introduced. According to the 19th Amendment, AG shall audit these Public Limited Companies ‘including’ accounts which means not only accounts, but also performance audits as well. Accounts are mainly income and expenses. But finance is a process that includes tenders and management decisions. These need to be examined to see what had gone wrong and where the problem lies. The audit process is not limited to the review of financial statements, but performance audits as well. The private external auditors do not carry out performance audits, but only the income and expense. That was why after we were empowered from the 19th Amendment, we were able to expose financial corruption that had taken place and how tender procedures have been riddled in order to favour political henchmen. Notwithstanding, there were a number of incidents where these institutions were able to recover the looted money,” Prasanna added.

The 20th Amendment removes companies from the equation, stopping at local authorities, public corporation and businesses or other undertakings vested in the government under any written law.

According to the Sri Lanka Audit Service Association report dated September 9, 2020 among the 117 Public Limited Companies that went unscathed before the 19th amendment was introduced were: The national carrier Sri Lankan Airlines Ltd; Mihin Lanka (Pvt) Ltd; Sri Lanka Catering Ltd; Lanka Hospitals Corporation Plc (former Apollo Hospital); Ceylon Fertilizer Company Ltd; Colombo Commercial Fertilizers Ltd; Sri Lanka Catering Ltd; Lanka Hospital Diagnosis (Pvt) Ltd; Canwill Holding (Pvt) Ltd; Sinolanka Hotel and Spa (Pvt) Ltd; Helanco Hotels and Spa (Pvt) Ltd; Canowin Hotels and Spa (Pvt) Ltd; Sri Lanka Insurance Corporation Ltd; Cricket Aid (Gurantee) Ltd; RaknaArakshaka Lanka Ltd; Lanka Logistics and Technologies Ltd; Milco (Pvt) Ltd; Magampura Port Management (Pvt) Ltd; Maganaguma Road Construction Equipment Company (Pvt) Ltd; Maganaguma Consultancy and Project Management Services (Pvt) Ltd and MaganagumaEmaulsion Production Company (Pvt) Ltd. These are some of the companies that incurred huge losses to the country due to alleged direct involvement of politicians and their appointees. 

In the 18th Amendment, Article 154 of the Constitution states, ‘The Auditor General shall audit the accounts of all departments of Government, the Offices of the Cabinet of Ministers, the Judicial Services Commission, the Public Service Commission, the Parliamentary Commissioner for Administration, the Secretary General of Parliament and the Commissioner of Elections, local authorities, public corporations, and businesses or other undertakings vested in the government under any written law’. 

According to SLASA President, the 18th Amendment enables the AG to audit only the accounts of these Private Limited Companies, but not performance audits.

With the 19th Amendment coming into effect, Article 154 of the Constitution was amended and reads as, ‘The Auditor General shall audit all departments of the Government, the Office of the Secretary to the President, the Office of the Secretary to the Prime Minister, the Offices of the Cabinet of Ministers, the Judicial Services Commission, the Constitutional Council, the Commission referred to in the Schedule of Article 41B, the Parliamentary Commissioner for Administration, the Secretary General of Parliament, local authorities, public corporations, business and other undertakings vested in the Government under any written law and companies registered or deemed to be registered under the Companies Act No: 7 of 2007 in which the Government or a public corporation or local authority holds fifty per centum or more of the shares of that company including the accounts’.

Former Additional Auditor General, A.H.M.L. Ambanwala said that once the key state owned offices are delisted from the AG’s scope through the much debated 20th Amendment, it erodes the AG’s independence. Hence there will be no necessity to submit financial activities of these institutions to the parliament although the Government is the major shareholder.
“The politicians and their henchmen in the respective Boards will once again be given the free hand to swindle public money for their personal usage. Government Procurement Guidelines will never be followed and their cronies will be awarded with tenders by manipulating the process as there is no one to audit the process,” Ambanwala said.

According to Ambanwala, the powerful Audit Service Commission was established under Article 153 and 154 of the Constitution, which enabled an independent audit service to function under the purview of the Audit Service Commission thus making the Auditor General answerable only to the Parliament. “But with the proposed amendments to the Constitution these responsibilities will be eroded from the AG’s scope. The 117 institutions registered under the Companies Act which are valued at trillions of rupees will not come under the purview of the AG. Compliance with financial and other regulations matters when the major shareholder is the Government and the main investment is from the State. Private auditors don’t look at compliance and don’t report to Parliament. This violates Article 148 of the Constitution which says Parliament shall have full control over public finance. The money invested and the returns should also come to the consolidated fund because investments are made to get returns,” he said.

in most of these 117 institutions tenders have been offered to the whims and fancies of either the subject Minister, Deputy Minister, the Board of Directors, their officials or even political cronies

Former Additional Auditor General, A.H.M.L. Ambanwala 

Govt. Wants to squash Audit Act?

According to him, the Government wants to squash the Audit Act, because the AG has got the authority to recover monies that had been plundered by the politicians and down the line- from Ministry Secretaries, Additional Secretaries to the clerks and peons. “It was in 2004 that discussions were first commenced on the implementation of the Audit Act, but neither the Government which was in power at that time nor the respective Governments in 2005 and 2010 tabled the drafted Audit Act in the cabinet to obtain parliament approved and then for its implementation. Through the 19th Amendment the AG received the powers to recover state funds swindled by Local Government authorities as well; however these powers were earlier vested on Provincial Ministers of Local Government. They were empowered to write off the surcharge. There were many instances when the respective Provincial Local Government Ministers had written off the surcharges,” he claimed.

Members of the SLASA are of the view that, if the Auditor General’s (AG) scope of duty is curbed, those who swindle and misappropriate state funds would go scot-free sans an interrogation. “Government audit reports issued after the AG was empowered show how the present regime prior to 2015 allowed their supporters to misappropriate state funds at will and the swindlers were never brought before Committee on Private Enterprises (COPE). It was only after the change of Government that we were able to bring them before COPE,” SLASA sources claimed.  

According to Ambanwala, in most of these 117 institutions tenders have been offered to the whims and fancies of either the subject Minister, Deputy Minister, the Board of Directors, their officials or even political cronies. “Billions of rupees of tax payers’ money have been looted out without being questioned. However, we were able to bring these illegal processes under control to a certain extent and save millions of rupees for the Government. We have brought all these corrupt officials including Ministry Secretaries before COPE and had questioned them. By curbing the AG’s scope, from the 20th Amendment, this Government which secured power to put a stop to bribery and corruption will allow their own politicians and the allies to start from where they had stopped in 2015,” he added. 

It was after the Government auditors were empowered that they were able to expose misappropriation of funds at Sri Lankan Airlines, Mihin Lanka, Canwill Holdings, Sinolanka Hotel and Spa and RaknaArakshaka Lanka etc. 

“The former managements never thought that AG’s Department would be empowered to audit them and that was why they misused public money as if it was their property. As the rules and regulations of the AG’s Department are specifically tailored to carry out Government sector audits, our officers are more equipped to investigate all the financial dealing processes and check the cause of losses,” Ambanwala claimed.     

Sources from the AG’s Department further said that it was because of the 19th Amendment that they were able to expose the 2015 Central Bank (CB) Bond Scam. “There were instances when we wanted to conduct audits at the CB, but the then Governors refused to provide us with the necessary details and documents claiming that there was sensitive information. When the former AG, S.C. Mayadunne wanted his officials to conduct audits of the CB, the then Governor, A.S. Jayawardena by letter dated April 10, 2001, wrote to Mayadunne that other than the information and documents that are sensitive or pertaining to policy matters and to third parties such as banking institutions falling within the ambit of section 45 of the Monetary Law Act, he will provide agendas of all Board meetings and confirmed Board decisions to enable the AG’s Department for a comprehensive audit of the CB, ” sources added.

Although the Governor Jayawardena refused to provide some details for the audit officers, when the AG’s Department sought the Attorney General’s opinion on it, the then Attorney General, K.C. Kamalasabayson PC by letter dated February 12, 2004 states as, ‘The AG is empowered by Article 154 of the Constitution and by Sections 42 and 43 of the Monetary law Act to audit the accounts of the CB. As Article 154 of the Constitution applies to the audit of the CB and as there should be uniformity in the application of the AG’s power to all institutions audited by him, the AG would be entitled in terms of Article 154(5)(a) of the Constitution to have access to all books, records, returns and other documents; to have access to stores and other property; and to be furnished with such information and explanations, as may be necessary for the performance of his duties and functions, with regard to the CB.

When the AG’s Department wanted to conduct a comprehensive audit of the CB bond Scam in 2015 and the bond scams taken prior to 2015, by letters dated June 24, 2016 and June 27, 2016 the then Governor CB, Arjuna Mahendran had informed AG, Gamini Wijesinghe that all information relating to impending or future monetary, exchange rate, interest rate and Government policy and matters relating to third parties cannot be shared due to its sensitivity.  

Sensitive information

“Referring former Governor Jayawardena’s letter to the former AG, Mayadunne, Arjuna Mahendran wanted to impede the information to the Government auditors. Once opinion aired by the former Attorney General K.C. Kamalasabayson PC was sent to Mahendran, he had to provide the notes and documents the Government auditors requested to carry out the audits. When the AG has the powers to access all these documents and if the CB tried to prevent the Government auditors from obtaining the vital details, in the event the AG is barred from carrying out audits in the Presidential and Prime Minister’s Offices and the 117 Public Limited Companies, tax payers money could be plundered as and when the politicians want,” sources alleged.   

 When contacted former AG, S.C. Mayadunne to find out whether there were such instances during his tenure as the Auditor General, Mayadunne responded positively. “When our auditors wanted to carry out certain audits at the Central Bank, they refused to release certain required details. The then Governor CB wrote to me saying that the requested details and documents cannot be shared as they are sensitive information. I then asked the Attorney General’s opinion. When we got the clearance from the Attorney General, the Central Bank released the details what we wanted,” Mayadunne said.

Speaking further, Ambanwala said as to how he was able to stop Ceylon Fertilizer Company Limited’s attempt to pay Rs.35.8 million to a Transport Contractor who was given the contract to supply imported fertilizer raw material from the Colombo Port to Ceylon Fertilizer Factory in Wattala.

“Although the tender was offered to this transport company there was a clause which said that depending on the fluctuation of fuel prices the transport cost should be amended. When the fuel prices dropped, the Fertilizer Company wanted the transport contractor to reduce the price and the payments were amended and the contractor accepted the revised payments. However after one year when a new Chairman took office, he tried to pay the backlog to this company seeking a commission from the transport company. When this was brought to Government Auditor’s notice, I conducted the audit and stopped paying the backlog of Rs.35.8 million,” he added.

It was the same with Norochcholai Power Plant. According to SLASA President, they have not followed proper procurement procedure as this company was not under the purview of the AG prior to 2015. “From 2009 June to 2016 June they have imported 6,775,199 mt of coal without following proper procurement procedure. The loss incurred by the CEB due to this fraudulent process was Rs. 4145 million,” he said.

The debt-ridden Sri Lankan Airlines according to AG’s Department sources, was a corrupt institution that was not under the AG’s scope of duty before the 19th Amendment was enacted.
 “Blatant abuse of power by the Board and the Senior Management propelled through the appointment of the former Chairman on a fulltime basis and the CEO,” Mr. Ambanwala who came under an acid attack on May 20, 2002 over an audit investigation he conducted relating to a procurement of computers to the Education Ministry said. Over the acid attack seven accused including Central Province former Education director and a chief accountant were sentenced for 10 to 20 jail terms with heavy fines. Mr. Ambanwala’s investigation found that a massive misappropriation of public funds had taken place during tender procedure at Central Province Education Department.

According to the ‘Weliamuna Report’ dated March 30, 2015, on Sri Lankan Airlines, the Chairman Sri Lankan Catering (SLC) had directed to purchase a vehicle for his personal use to be allocated from SLC. Although the management appeared to have pointed out to him that there is no practice in SLC to allocate vehicles to the Chairman, and that if he wants the management could release a vehicle from their fleet, the Chairman had overruled the management decision and the management had to purchase the vehicle he has already negotiated with Lanka Orix Finance PLC on the basis of a financial lease. SLC has subsequently made a down payment of Rs.5.162 million and subsequent 48 monthly loan rental of Rs.111, 032. The report further states, ‘The purchase of this vehicle WPKV 3836 had been done without any competitive tender process or following company procedure. The entire process of acquisition was flawed and caused financial losses to SLC. It also appears from the Certificate of Registration that this vehicle had been imported on a Government permit, which cannot be transferred without paying relevant duties or taxes to the government. We recommend this matter be referred to the relevant division of the Police to consider criminal investigations and to the Commissioner General of Inland Revenue for appropriate action in respect of loss caused to the State’. 

The report further states as to how the Lady Sri Lankan Country Manageress, based in London, who was appointed to the post in September 2011, was transferred out in May 2012, for not allowing an unaccompanied baggage from the Sri Lankan High Commission Protocol (London) addressed to the Presidential Secretariat in April 2012, containing certain vehicle spare parts.

‘The Country manager inquired whether there was a practice where the Protocol Officer of the Sri Lankan High Commission in London brings similar bags weighed approximately 25- 35kg even in the past and had found out that the High Commission sends unaccompanied cabin bags with a ‘Rush Tag’ (an identification tag for lost, unclaimed or mishandled baggage), in Sri Lankan flights to be collected in Colombo by ‘authorities’. There were no airway bills or claimants on board by Sri Lankan flights which were carrying these bags in the cabin. The Country Manger had informed the protocol officer about the inability to send the parcel on board as it was illegal to send unaccompanied parcels and if this parcel was detected there would be serious security violations. However in May 2012, she was summoned to Colombo where, she was told that she was recalled on orders and was sent to Hong Kong to cover the remaining period’ the report states.

 “All these activities had taken place because they knew that the AG’s Department was not conducting audits. Now once again they are attempting to bring this culture back,” sources alleged. 

Meanwhile, Auditor General Chulantha Wickremaratne when contacted told the Daily Mirror that there will be repercussions if the AG’s Department is deprived of conducting audits in these 117 institutions.

“In the 18th Amendment the external auditors were given powers to audit the final accounts, but not the performance audit. Through the 19th Amendment the powers we had to carry out performance audits will be removed from the AG’s scope of duty from the proposed 20th Amendment; which repercussions we could see in the future. The total net worth of the assets of these 117 companies is one trillion rupees. The Parliament will have no control over these institutions and the audit reports will not submit to them,” Wickremaratne said.