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Mar 23, 2015 News
…says it’s time for a total overhaul
Taking into account the series of flagrant breaches of Guyana’s financial laws over the years, Chartered Accountant Chris Ram posits that it has as a consequence made the country progressively worse. He said that if the nation has not reached the nadir of public accountability, it is more than likely very close to it.
Ram is also convinced that it is time that the country’s public sector accounting rules be reviewed and amended to reinforce efforts and systems intended to ensure national accountability.
On that point, the lawyer added that the Fiscal Management and Accountability Act 2003 (FMAA) was intended to address all matters concerning the preparation and execution of the annual budget; the receipt, control and disbursement of public money; the accounting for public money; and all other matters to bring transparency and efficient management of the finances of Guyana.
“What we now see is the arrogant and flagrant exploitation of weaknesses in the law and the systems rather than measures to fix the problems,” he added.
Ram, in a detailed article on his blog, chrisram.net, said that the FMAA was an improvement over what it replaced and should have brought greater accountability to the country. Unfortunately, the accountant said, it did not, owing to the political control over public funds, corruption and all pervasive slush funds, and “it has become progressively worse as state and party lines become blurred.”
“Yet, in the face of such grave abuses, the Government continues to react strongly to calls for better accountability to the point where the President accused those calling for greater liability as anti-development.”
Further, Ram posited that arguments against enhanced public-sector financial reporting, disclosure and financial management typically involve arguments that superior methods are either not available, or that they come at a prohibitive cost. The former he explained, is patently untrue for governments that continue to use traditional, cash-based methods of accounting; while the latter can be countered – perhaps with a little more effort – through careful examination of the costs of making, and of not making, such improvements.
He said, too, that the unexpected costs of poor decision-making and fraudulent reporting are reflected in the heavy taxation and the servicing of large loans being borne by taxpayers. The attorney-at-law asserted that more reliable and complete financial information, and greater transparency and accountability will help to reduce expenditure, lower taxes and reduced loans. He stressed that the cost of not doing so is just too high.
Additionally, Ram pointed out that the Chairman of the International Accounting Standards Board noted recently that “without transparency, neither can there be trust or accountability”.
Ram said that governments that employ traditional cash-based public-sector accounting cannot be transparent: their reporting necessarily presents only part of the total picture. He said that traditional methods of government accounting – cash-based accounting are simply insufficient to allow governments to discharge accountability to the public, or to permit investors and potential investors to make fully informed decisions. He stressed as well that better accounting practices are required.
Speaking to the cash-based accounting which Guyana and most other countries practice, he said, it reports cash inflows (eg from taxation receipts, interest earned on investments, and proceeds from sale of assets) and cash outflows (eg spending on government programmes, interest on borrowing, lending, asset purchases, public-sector salaries and wages).
However, he highlighted that a major weakness in that system is its failure to distinguish between the economic characteristics of different types of transactions since it treats the sale of public property in the same manner as cash raised through taxation. Likewise, Ram said that government lending – a cash outflow – is treated the same as the payment of public-sector salaries.
“It is not that cash-based accounting does not have its use. It clearly does – both in the private as well as the public sector. Any entity, whether an NGO, government or a commercial entity needs to know its cash position, inflows and outflows, borrowing requirements, and liquidity position. But cash is not all and in fact cash-based accounting can be significantly misleading, facilitating creative accounting.
A government faced with the difficult decision of balancing its budget may find it expedient to dispose of the crown jewels rather than cutting expenditure or raising taxes. But what happens when there are no further assets to sell? In other words, cash-based accounting allows politicians to delay and defer the tough decisions to subsequent years and generations of taxpayers,” Ram said.
In the post, Ram had suggested that in preparing the budget then Dr. Ashni Singh, the Minister of Finance, might just spare a thought about the manner in which the government accounts are kept and whether the existing cash-based system serves the long-term interest of the country. He noted on his website too that both the United Nations System of National Accounts (SNA) and the IMF Government Finance Statistics (GFS) – promote the use of accrual-based reporting.
During a brief telephone interview with Kaieteur News, Ram suggested that the position which he posited during the time the Minister was preparing the 2012 budget has become a necessity. Asked to state just one of the major accounting deficiencies of the public sector, Ram said that the system lacked integrity, independence and proper oversight with a useless and compromised State Audit Office.
He said that the progressive deterioration over the past few years has caused him to lose any hope of a change of direction or improvement in the system of public financial management and adequate, independent and strong oversight with tough penalties for the constitutional, statutory and accounting violations that seem to take place on a daily basis.
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