We have a ritual in Ghana. Every once in a while, the countryâ€™s Auditor General compiles the highlights of what she found when her battalion of public auditors went through the books of various public sector institutions in line with the Constitution and various laws requiring this undertaking on a periodic (usually annual) basis.
Because all these institutions â€“ spanning a wide spectrum from those that are part of the â€œcore Governmentâ€, like Ministries, all the way to those organised on commercial lines, like Ghana Post Company -also retain some internal auditing capacity, which is regulated by the Internal Audit Agency, and in some cases also engage private auditing firms (about 25 of such firms get authorial credit in some of the public audit reports), the actual preparation of these highlights is a logistical nightmare involving a number of steps and hoops. But, eventually, the dossiers for different clusters of public institutions get compiled into different audit reports and all of them are presented to the Public Accounts Committee of Parliament through the Speaker for deliberations and to aid in the oversight of the Executive arm of Government by the Legislature.
Journalists get copies of these reports too. In blazing neon headlines, media houses compete with each other to present to Ghanaians the most lurid spectacles of waste, rapine, plunder and catastrophe. Then the news cycle shifts to something else. Until next time. Wash, rinse, repeat.
Having been an attentive observer, and sometimes participant, for quite a while now, in these shows, I think I have a few simple observations that can help explain at least a part of the reason why this fiasco persists.
On the face of it, the public financial management situation in Ghana is alarming. In the so-called â€œMinistries, Departments & Agenciesâ€ (MDAs) â€“ what you might call â€œthe core Governmentâ€ â€“ category, the irregularities have moved from $64 million in 2011 to $366 million in 2020. More than a five-fold increase. Depending on how you tally the numbers, the total â€œwasteâ€ in the Ghanaian public sector suggested by the reports exceeds either $1.5 billion or $3 billion per audit cycle.
Yet, certain features of the reports, and of the auditing process itself, urge caution in running with the headlines and chanting for public sector chiefs to be marched through the principal streets on oxen-carts to the guillotine. I will describe just four of these features for now and makes some modest suggestions about how to change things.
Auditor General Reports in Ghana Routinely Confuses the Picture
If you are a regular reader of the reports like those of us in the civil society movement, you would soon learn that they are often riddled with fundamental errors, quite a number of which are as a result of public auditors not always knowing and understanding the organisations they are auditing well enough.
Thus, you will notice highly uneven coverage. Some public sector organisations get merely perfunctory coverage whilst others have the misfortune of being assigned diligent auditors who succeed in getting many pages of highlights about their auditees into the final report. In one fascinating example of this phenomenon, whoever handled the BOST assignment in the 2020 audit round went as far as digging into the organisationâ€™s perimeter control installations, including CCTV configurations (with colourful pictorial illustrations to boot). Yet, in the same audit round, the Ghana School Feeding Secretariat entry in the final report is a grand total of 50 words.
The lack of standardization and the vast divergence in rigour due to widely varying capacity and experience with their assigned organisations among auditors can spill over into some comical outcomes. For example, in 2016, the Tema Oil Refinery (TOR) came under massive attack for having unlawfully debited $370 million from the countryâ€™s petroleum accounts. Considering that this amount was 75% of the total irregularities ($550 million) for that cluster audit, TOR found itself on the frontpages, with everyone calling for the executives to be hanged from the nearest lamppost.
It turned out the whole matter was the result of an overzealous but inexperienced auditor confusing the Customs outpost on TORâ€™s premises with the organization itself and therefore reviewing the wrong records. A detailed rectification was never made.
In one of this yearâ€™s reports, the famous Noguchi Memorial Institute of Medical Research was seriously excoriated for lacking the standards to conduct tests because all its laboratories lack ISO certification. Noguchi does have serious resource challenges. But it is not a single lab. Some departments, such as the Department of Parasitology, do have elaborate Quality Management Systems that have been audited to ISO standards.
Even in instances where the situation is one of competing opinions, one gets the impression that the Auditor General is not exercising complete diligence. The current squabble with the Ghana National Petroleum Corporation about the lack of parliamentary ratification for the national oil companyâ€™s â€œinternational business transactionsâ€ clearly calls for a legal opinion. The Supreme Court in a series of decisions from Balkan Energy, through Faroe Atlantic and Klomegah, to Assibey-Yeboah, has clarified the law in a manner that would suggest that unless a public corporation was acting as the â€œalter egoâ€ of the central government, parliamentary approval of its international business transactions is not required.
The public squabble between the Auditor General and the GNPC about the latter having caused irregularities to the tune of $34 million confuses the picture precisely because the focus on parliamentary ratification detracts from the more worrying issues of procurement defects.
2. A Better Classification Scheme for â€œIrregularitiesâ€ is Needed
The very notion of â€œirregularityâ€ can be subjected to further analysis and better illuminated to protect the public purse. The current Auditor General Departmentâ€™s classification scheme for irregularities focuses on the source of the irregularities but not really on the impact and degree of concern. The seven categories in the said scheme have been selected to identify the types of actions of the audited institutions that typically give rise to irregularities. So, for example, functional areas like: â€œpayrollâ€, â€œprocurementâ€, â€œdebts/loansâ€, and â€œcash managementâ€, among others.
However, a focus on impact and degree should lead to a sub-classification system, such as class 1 irregularities covering acts that have led to direct financial loss as a result of the clear abuse of process by a principal spending officer versus, say, class 2 irregularities relating to breaches of standards that cannot clearly be linked to direct losses and which may, in fact, emanate from environmental conditions beyond the capacity of the auditee (the institution or its senior management). Such an approach should also help bring better meaning to the quantification of these irregularities.
For example, when a public sector institution does not receive its budgetary allocation and therefore fails to pay the social security entitlements of its employees for a particular year, we cannot in good conscience sum up all the liabilities and call the final number a â€œloss to the stateâ€ or a â€œfailure to make savingsâ€, which are the two primary components of the current definition of â€œirregularitiesâ€. Such lapses cannot be quantified as losses to the state in the same way that they can if the situation had been one of embezzlement of the funds allocated for social security payments.
As a more concrete example, take the debt/loans irregularities category in the public boards and statutory corporations audit round of 2020. The number is a mindboggling $1.8 billion. But a full half of this amount emanates from debts that state-owned companies in the electricity and fuel value chains owe to each other. A good chunk of these debts has arisen because government price-setting does not always accommodate the full cost of delivering the service. There are sometimes implicit subsidies to citizens in the final pricing of energy.
Whilst the auditor does well in highlighting these policy dysfunction issues, should such â€œirregularitiesâ€ and especially the monetary value placed on them, be bundled up with losses occasioned by embezzlement, inflated contracts in procurement scams and poor credit management?
In the 2020 MDAsâ€™ round of audits, the â€œloans and debtsâ€ irregularities category â€“ apparently leading to losses of $200 million â€“ constituted a full half of all irregularities. But look more closely and you will find that a striking 91% of the amount ($181 million) results from debts owed by public health facilities to medical suppliers.
These facilities owe the reported amount of money because Government policy does not allow them to fully recover the costs of delivering the services, or delays in reimbursement by the National Health Insurance Authority (NHIA) make servicing of debt owed to medical suppliers impractical. Does such a situation constitute a â€œlossâ€ to government in a strictly audit sense? How is the Head of a Hospital supposed to respond or react to such a finding? If the idea is to shine the spotlight on general policy dysfunction or poor central government fiscal practices, is the auditing process the right lens and framework? What about the fact that for most people seeing the $200 million figure flashed about under the caption of â€œlosses to the state from irregularitiesâ€ their first instinct is to immediately conjure up notions of embezzlement and corruption? Should we continue to encourage this perception?
I am convinced that throwing up all these different types of â€œundesirable situationsâ€ into one pot confuses the picture and makes it harder to take the Auditor Generalâ€™s report and apply it as a sanitising agent in the public sector. Loading the report with lamentable situations that are nonetheless not the direct responsibility of the principal auditees to fix leads to confusion about enforcement.
3. Not Everything is Material Enough to Dump into the Reports
Another, similar, feature of the reports that dilutes their effectiveness is the lack of enforcement of the materiality thresholds when presenting matters for Parliament to act on. Many of the pages in the reports can be cut out with no loss of value if materiality thresholds are properly observed. By this I mean that trivial matters should not be escalated to the attention of Parliament. The bulky reports give the impression of thorough work but careful reading reveals many details that can be left out to ensure that the reports are of a size that more people will read.
For example, when a report to Parliament identifies a Cocobod employee, Patricia Amankwa, as having failed to retire imprest of 190 Ghana Cedis, or calls out Coca Cola Bottling Company for owing 44 Ghana Cedis to Cocoa Clinic in Kumasi, one begins to get the impression of â€œpaddingâ€. Why should Parliament be asked to look into why Exim Guaranty owes Cocoa Clinic 76 Ghana Pesewas?
4. The Auditor General Should Not Steer Away from Politically Sensitive Matters
At the same time that the Auditor General was berating Ms. Patricia Amankwa for failing to return 190 Ghana Cedis out of an amount Cocobod advanced to her to cover costs incurred in their service, it was busy ignoring the much more egregious issues in the Frontiers Healthcare contract signed by the Ghana Airport Company Limited. Its auditor sent there somehow succeeded in not observing all the procurement and operational lapses that have surfaced in various investigations, including the lost potential gains and failure to secure regulatory approval for the overall setup.
At the same time that Exim Guaranty was being named and shamed for owing Cocoa Clinic 76 pesewas, the alarming waste of public funds arising out of the National Lottery Authorityâ€™s deal with Chinese vendors, brokered through TekStark, for Nexgo N5 lotto devices, leading to a potential loss of $3 million due to poor procurement and operational design, was being carefully avoided.
The Electoral Commissionâ€™s perennial abuse of public funds by failing to properly account for millions of dollarsâ€™ worth of electoral equipment that it bought between 2016 and 2019 (despite claims of not having bought any such equipment since 2011) failed to register even a whiff of concern in the published audit reports.
In this context, the former Auditor General, Daniel Domelovo, who was removed from office to howls of protests from Civil Society Organisations (CSOs) represented the only hope, so far, for serious transformation of the Auditor Generalâ€™s Department into a fearless check on abuse of public funds regardless of which political heavyweight is involved. His bold decision to disallow spending authorized by the powerful ex-Senior Minister to Kroll in the UK sent powerful signals to the entire establishment that a new era had arrived. The surcharge may have been set aside by the Supreme Court on a technicality, but the principle was established. It would seem that the course for change he set has been prematurely terminated. That would be very unfortunate.
The sense that powerful people, especially those at the apex of the political system, are not exempt from the reach of public audits is the only way to restore confidence in the usefulness of these exercises.
Until the auditing process can get to a state where the public as a whole, but more specifically the civil servants on the frontline, are confident in its fair and impartial use to restore sanity to public financial management, regardless of the interests at play, findings shall continue to serve as little more than fodder for periodic circus shows.