This article was published in Ceylon Daily News – 10th November 2009.
The rational of this interview was to ascertain the effectiveness of the professional independence in the Public Sector and in the Auditor General’s Department when performing their duties.
As the country’s sole financial watchdog. The Auditor General’s department has been auditing all government institutions including the local government bodies and reporting to the Parliament of Sri Lanka on how these institutions have spent public funds.
The Auditor General’s Department has been tasked to assure the parliament of Sri Lanka that the Government’s financial activities are carried out and accounted for in keeping with the intentions of the legislature.
The Auditor General’s Department established by the British rulers over 200 years ago in Sri Lanka has to report on how the government institutions are spending the public funds for approved purposes and highlights the issues that requires the urgent attention of the Legislature.
The role of Auditor General is very important in ensuring the integrity and accountability of any systems of government. The independence and high degree of professionalism in the Auditor General’s Department has earned public credibility.
Being the 38th Auditor General of Sri Lanka, S.Swarnajothi says the duties of professionals may be affected if personal objectives surpass their integrity and independence.
In an interview with the Daily news he said the country has seen a massive deterioration in all areas including auditing and financing. There is total deterioration of people’s thinking and attitude, he said. As auditors we have to maintain the highest level of integrity and independence.
Our professional duties may be affected if we give priority for our personal objectives, he said. Swarnajothi said that the officers in his department have been exercising the highest degree of professionalism and independence in the discharge of their duties.
Q: Can you briefly explain your authority, duties and responsibilities?
A: I have been appointed by the President of Sri Lanka under Article 154 of the constitution of Sri Lanka. I shall audit the accounts of all public institutions including the offices of cabinet of ministers and Parliamentary Secretary General and the judicial services commission. My report for each and every public entity should be presented to parliament.
Government officers are the custodians of the public funds and my department’s responsibility is to ensure that these public assets are utilized for approved purposes and adequate returns are derived from these assets.
Apart from the constitution , I have been empowered to audit all local government bodies and the institution coming under the provincial council and local government Act.
In addition, all sports associations and Agrarian services councils should be audited by the Auditor General’s Department and the report has to be submitted to the relevant ministries. We have also been tasked to audit the Government projects too.
Q: What is your perception on audit quality in developed countries for example Sub Prime Mortgage crisis USA, Enron, World Com?
A: The world has seen massive deterioration in all areas including the accounting and auditing. The professional lose their integrity, impartiality and independence if they become ego ridden. Majority in the society are going after money and professionals do not maintain high standard of ethic in their dealings. The auditors should also receive the blame for the collapse of corporate giants. If they performed their duties properly, these things could have been averted.
It is not country that matters for the collapse of corporate giants, the ethical behavior of professionals.
The non-compliance with professional ethics and also greed for short term profit have resulted these collapse.
If the auditors fulfilled their duties properly using their professionalism, we will not see the collapse of corporate giants in Sri Lanka. These are reputed professionals who were involved in auditing the corporate giants in Sri Lanka. They have not executed their duties properly and this has resulted in the collapse of such corporate ventures. I feel that the independence of auditors in the private sector has been affected.
They are not in position to take a right decision at the right time using their professionalism. This situation has also averted them to identify the problems that caused the collapse of corporate giants in Sri Lanka.
The auditors in the Public sector are very independent as they do not rely on anyone for salaries or perks. There are several regulatory bodies in Sri Lanka. They should carry out their duties properly to identify problems in the corporate sector at the early stage.
Q: What is your perception on audit quality in Sri Lanka for example The Finance, Golden Key and Ceylinco Sri Ram?
A: Most of these companies have shown a significant drop in profits or incurred losses in 2008.Most of these companies maintained the same volume of assets and liability structures of previous years. Further their core business management team and business processes have not changed. The associated business risks of these companies were not been identified and precautionary measures were not taken accordingly. Unfortunately in our country the media academics, professionals and the civil society do not get involved in rectifying these malpractices.
Q: What is your perception on good governance? Is it an eyewash? Do you think that good governance help detect businesses collapse beforehand?
A: Accountability, transparency, responsiveness, equitability and effectiveness and efficiency are among the major cornerstones of the good governance. Governance in the private or public sector starts from the standards of behaviour.
No one can even think of good governance without the standard of behaviour. Good governance in the public sector begins from the standard of behaviour. But the private ventures such as The Finance, Golden Key, Ceylinco Sri Ram do not seem to have such kind of behavioural standard.
These institutions did not have proper organization structure, external reporting systems nor any control system.
Good governance cannot be expected from the public or private institutions which recruit unqualified and unskilled personnel to their staff. Good governance is no more in institutions when there recruitments to the private or public sector are not made without the following proper procedure.
There are a number of Blue chip organizations in the public and private sector which have showed outstanding performances. These organizations are profitable due to the proper code of conduct and sound organizational structure.
‘Government officers are the custodians of the public funds and my department’s responsibility is to ensure that these public assets are utilized for approved purposes and adequate returns are derived from these assets’
Blue chip organizations in the public and private sector which have showed outstanding performances. These organizations are profitable due to the proper code of conduct and sound organizational structure.
It has been proved to the world that private sector ventures are worse than public institutions in terms of accountability, organizational structure and transparency.
Our State banks are performing very well. Their audit reports are clean and they provide good customer care and earning profits.
Q: Certain Government institutions are in competitive business with the private sector and also they have to maintain some degree of confidentiality regarding critical business information. As Auditor General how flexible are you in this dilemma?
A: The Auditor General’s Department understands the significance of confidentiality on business information. The senior management may have the custody of confidential information and also senior officers of AG’s Department can be assigned to verify this information. Such information could be presented to the Deputy Auditor General in charge of media or directly to me. The confidentiality of such information is retained.
Q: Can a Public Sector company be flexible from AR and FR in making prudent business decision?
A: The officers in the public sector are risk aversive and show reluctant to take prompt decision. They pay serious attention on Financial Regulations (FR) and Administrative Regulations (AR) before decisions are taken.
The Private sector is far ahead of the public sector in terms of decision making as the FR or AR does not apply to them. The main reason for the collapse of private financial institutions is that they have not complied with the Central Bank guidelines. Personal favoritism transcends all rules and barriers that have been put in place by them in private sector institutions.
But no one can surpass the legal framework of public institutions. Everything should be done within those boundaries. Even the Finance Minister cannot obtain loans from the State banks without following the proper procedure.
The AR and FR are mandatory to the government departments. But the corporations and the government owned companies that are engaged in businesses can develop their own procedure within the regulatory parameters and this should be approved by the regulator before the implementation.
If such procedure goes beyond the existing legal parameters. Cabinet approval should be taken for the implementation of such method.
Q: What is your general opinion of our public sector? Is it productive and efficiently managed?
A: I am not the person who believes that the private sector companies are well managed. It has been proved that certain private sector companies have failed in the past. They lack integrity and all other aspects of good governance.
It is not the ownership, what matters is good management to improve productivity and efficiency. Certain Government institutions such as State banks provide good customer care and generate profits. Not all private sector companies are efficiently managed. Some family companies are under-capitalized and some are incorporated for siphoning out taxes or to grab a short term profits and some managers do not possess the required skills and qualifications.
However incantatory ownership also a matter in running a business profitably. An owner of a private company may not like to continue his business with losses and also the private sector rewards employees on performance.
Q: What type of audit findings are referred to COPE? How effective is the COPE in resolving audit issues?
A: Long unsettled audit queries are reported to the COPE auditee is given adequate time to rectify the situation. The objective is to minimize COPE reporting. But the AG’s Department needs the support from the client institutions by timely answering the audit queries and also taking remedial steps on system weakness.
On average the AG’s Department has given 7 percent of unqualified (clean) reports to its clients. 77 percent qualified reports and the balance 16 percent disclaimer reports. The AG’s Department is trying its level best to increase the number of unqualified reported clients.
The writer is a charted accountant