Critical Evaluation of the Auditor-General's audit of State Owned Enterprises
The Auditor-General's audit of Public Corporations and State Owned Enterprises (SOEs) and its compliance with the Constitutional and Legal Public Financial Management Rules:
A Critical Evaluation
Valentin Kwasi Mensah (FCCA, PhD, MBA, CIA)
1. Background and Introduction
In March 2020, there was “public furore” and outrage in Parliament following revelations by the Administrator of the Ghana Education Trust Fund (GETFund) that the Auditor-General (A-G) presented a budget of GH¢350,000 budget for ‘fieldwork and logistical costs’ to enable him to conduct the audit of GETFund’s accounts from 2012 to 2016.
The Administrator also expressed “grave disappointment” with the work performed and asserted that it was a “poor job with little professional touch … which must not be tolerated by any auditing firm” (DailyGuideNetwork, 11 March 2020).
On 3 October 2022, the President directed the Director-General of SIGA to work with the A-G “to drill down the causes of the infractions, identify the persons responsible and make the necessary recommendations as prescribed by law, and gave the Director General of SIGA and the A-G four weeks to submit a report on that to the Chief of Staff (Myjoyonline.com 3 October 2022). This directive was after a group called Citizens’ Coalition, which is made up of notable members of civil society, media and the legal fraternity, petitioned the A-G in September 2022 to apply his surcharge and disallowance powers granted by Article 187(7) of the 1992 Constitution to retrieve over GH¢17 billion of financial irregularities reported in the 2021 financial year. Unfortunately, the outcomes of various appeal cases against surcharges and disallowances following the A-G’s implementation of the seminal Supreme Court’s ruling in Occupy Ghana versus Auditor-General paints a bleak picture of lost opportunity against the bloated national expectation of recovery of misappropriated resources. This may be a reflection of the absence of substance in the amounts reported as irregular, and the ineffectiveness and efficiency of the Auditor-General and the Audit Services.
It also appears that there are worrying frustrations in the appointment of external auditors for State Owned Companies (SOEs) by the A-G with adverse implications on the SOEs’ financial reporting compliance requirements under the Companies Act 2019 (Act 992) and Public Financial Management Act 2016 (Act 921). According to the A-G, there are “unforeseen delays in the procurement process for appointing auditors under the Public Procurement Act” and “a level of misconception among certain SOEs as LLCs[Limited Liability Companies] concerning the Auditor General’s mandate to audit them, notable among them VALCO and Tema Oil Refinery (ToR)” (2018 SOR). He adds that “the mandate of the Auditor-General is not affected by the status of some SOEs as LLCs.” The A-G’s position may reflect a confusion between his mandate under article 187(2) of the Constitution to audit public accounts for Parliament and the statutory requirement for auditing for under Companies the Act 2019.
As Emile Woolf explains, “‘private’ [in this case government] audit is undertaken at the behest of an interested party (e.g. a sole trader) or parties (e.g. parties in a partnership), with a determined scope of audit. A ‘statutory’ audit, on the other hand, arises under the Companies Act as a result of which it has become a statutory obligation for the accounts of every limited company to be audited” (Woolf, 1986). The scope of the statutory audit is largely determined by the governing legislation, which the directors, shareholders, or even the auditors of the client company have no authority to vary in any way.
Furthermore, a review of the 2020 State Ownership Report (SOR) indicates that in addition to the audit of most public corporations, the Auditor-General currently audits at least eight (8) large SOEs including Electricity Company of Ghana Ltd, BOST, Ghana Water Company Ltd, and Graphic Communications Group Ltd and charge amounts similar to previous audit fees that are described as ‘budget for incidentals’. Interestingly, the Audit Service requests the SOEs to pay specified amounts for incidentals into an account designated “Director of Audit, Finance & Administration” with the Bank of Ghana. Arguably, a charge for incidentals or fees by the Audit Service contravenes article 187(11) and (14) of the 1992 Constitution and section 26 of the Audit Service Act, 2000 (Act 584) which state that all salaries and allowances, and the administrative expenses of the office of the Auditor-General payable to or in respect of persons serving in the Audit Service shall be a charge on the Consolidated Fund.
Importantly, regulation 204 of the Public Financial Management Regulations, 2019 L.I. 2378, clearly states that the annual financial statements of a Public Corporation or a State Owned Enterprise shall be audited by an external auditor licensed under the Chartered Accountants Act 1963 (Act 170) and appointed by the Auditor General and in accordance with International Standards on Auditing.
The above issues concerning the Office of the Auditor-General and corporate governance, raise important questions on possible breaches of the Constitution, the Public Financial Management Regulations and the Companies Act 2019. This article explores the A-G’s mandate, State Ownership Reports and the relevant public financial management laws as well as matters arising and provide recommendations to incite a national debate for corrective actions.
2. Auditor General’s Constitutional and Legal mandate for the audit of Public Accounts
Article 187 (2) of the 1992 Constitution and section 11 of the Audit Service Act 2000(Act 584) stipulate that the public accounts of Ghana and all public offices, including the courts, the central and local government administrations, of the Universities and public institutions of like nature, of any public corporation or other body or organisation established by the Act of Parliament shall be audited and reported on by the Auditor-General. Article 187(5) continues that the A-G shall submit his report to Parliament within six months after the end of the immediately preceding financial year, drawing attention to any irregularities in the accounts audited and to any matter which in his opinion ought to be brought to the notice of Parliament for its debate and dealing with matters arising. Section 84 of Public Financial Management Act 2016 (Act 921) echoes that the A-G shall, within six months after the end of each financial year, examine and audit the public accounts submitted under the Act in accordance with article 187 of the Constitution and the Audit Service Act, 2000 (Act 584).
Article 184(2,3,4) and Section 12 of Act 584 also require the A-G to audit the Bank of Ghana’s statement of foreign exchange receipts and payments or transfers in and outside Ghana and submit his report within three months to Parliament for its debate and the appointment of a committee to deal with matters arising.
In order to safeguard the independence of the Auditor-General, Article 187 (11) and (14) of the 1992 Constitution and section 26 of the Audit Service Act, 2000 (Act 584) provide that the salaries and allowances, and the administrative expenses of the office of the Auditor-General including all salaries, allowances, gratuities and pensions payable to or in respect of persons serving in the Audit Service shall be a charge on the Consolidated Fund.
2.1 Issuance of Surcharge and disallowances of expenditure by the A-G
Importantly, following the Supreme Court’s ruling on Occupy Ghana Vrs Attorney General , public expectation has been elevated on the A-G’s mandate provided under Article 187(7)(b) and Section 17 of Act 584 to “disallow any item of expenditure which is contrary to law and surcharge the amount of any expenditure disallowed upon the person responsible for incurring or authorizing the expenditure.”
In the above Supreme Court ruling, the judges stated that, “we are also of the view that, the Auditor-General is expected to name the persons who commit irregularities etc, under Article 187 (7) (b) and Section 17 of Act 584 respectively, recover the amounts from them and thereafter those persons be made to face appropriate punishment. That should be the way forward” (Occupy Ghana V Attorney General).
However, article 187(9) of the Constitution allows a person aggrieved by a disallowance or surcharge made by the A-G to appeal to the High Court under the High Court (Civil Procedure) Rules, 2016 (C.I. 102). Rule 5 of C.I. 102 requires the A-G to file with the Court Registrar within fourteen days after the receipt of notice and grounds of appeal, five copies of all the documents used by the A-G in respect of which the appeal has been lodged and his response to the notice setting out a concise statement of the facts and points of law that the A-G intends to rely on. In the main, the documents required by Rule 5 of C.I. 102 are in line with the requirements of International Standard on Auditing (ISA), essentially documents of audit evidence based on which the disallowance and surcharge are made. ISA 500 explains what constitutes audit evidence in an audit of financial statements, and deals with the auditor’s responsibility to design and perform audit procedures to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the auditor’s opinion.
It seems that Rule 5 of C.I.102 has become a difficult hurdle for the A-G to clear in the operationalisation of article 187(7)(b) following the Supreme Court’s ruling in the case of Occupy Ghana vs Attorney General. Several aggrieved persons won their appeal cases against the A-G. For instance, when ruling on an appeal case, Justice Georgina Mensah-Datsa, held that the A-G’s audit and the subsequent notices of surcharge against the two appellants did not follow due process as the A-G failed to give the appellants a hearing, which was in breach of rules of natural justice and Articles 23 and 296 of the 1992 Constitution.
During its deliberations in December 2019 on the Ghana Audit Services’ 2020 Budget Estimates, the Special Budget Committee of Parliament noted that out of the amount of GHS8,465,250,157 identified as irregularities in the various reports submitted to Parliament in 2018, only GHS67,315,066 (7.95%) had been recovered from the perpetrators. Furthermore, they noted that nothing was recovered from the 112 certificates of surcharge and disallowances of GHc511,211,239.04 issued against individuals, organisations and institutions who committed financial infractions, as announced by the A-G on 30 November 2018.
Moreover, following the A-G’s issuance of certificate of surcharge to a Senior Minister in November 2019, the Senior Minister subsequently filed an appeal against the A-G’s surcharge. The A-G was found in contempt of court for failing to respond to the notice of appeal within the required time. The conclusions drawn by the High Court judge, Justice Afia Serwaa, on the integrity and professional conduct of the A-G, as shown below, were decisive and regrettable for the Office of the A-G and the Service:
“After all, the audit had been completed and the Notice and Grounds of Appeal had been served a month prior. Whatever documents may have informed the decision that was the subject of appeal would already be in existence. In such circumstances, as soon as the Notice and Grounds of Appeal came to his notice (even if it was 13th January, 2020), if he had been minded to abide by the Rules under which he exercised the very jurisdiction to determine the liabilities of the Applicant, he could have had copies made and filed or served without delay.”
The effectiveness of Audit Service or the A-G is directly dependent on the efficiency of the audit process and the quality and relevance of the information reported to Parliament. The cost to the country’s economy of poor financial management in the public sector is huge. Similarly, the benefits of good financial management and financial reporting by governments can be immense. As beautifully captured by Justice Dotse:
The tendency where public accounts are considered as a fattened cow to be milked by all and sundry must stop. Our laws on financial management must therefore be made to work to prevent absurdity in our enforcement regimes of same” (Occupy Ghana vs Attorney General).
Coping with audit workloads while sustaining quality and meeting deadlines is an ongoing challenge for any supreme audit institution (SAI). Clearly, the A-G’s mandate is quite burdensome as it requires good knowledge of government and its component organizations, as well as a high level of professional judgment and competence in the planning and execution to produce timely reports that are useful to Parliament and of good quality to meet the requirements of the High Court (Civil Procedure) Rules 2016 (C.I. 102). More importantly all audits involve performing procedures to obtain sufficient appropriate audit evidence, therefore, the office of the Auditor-General requires a lot of focus on the audit of public accounts.
“When the whole force of the mind is directed to one particular object, as in consequence of the division of labour it must be, the mind is more likely to discover the easiest methods of attaining that object than when its attention is dissipated among a great variety of things” (Adam Smith, 1776).
Based on the above constitutional provisions, the A-G’s mandate of public accounts auditing can be categorised into:
a. Public offices, including courts, the central and local government administrations;
b. Universities and public institutions of like nature;
c. Public corporations or other bodies or organisations established by an Act of Parliament.
Under the Public Financial Management Act 2016, “public accounts” means the financial statements, notes and reports pertaining to money received into, held in, and paid from public funds. The Cambridge University Dictionary also defines public accounts as the set of official records that show the financial situation of government departments and what they have spent, received, borrowed, etc., in a particular period.
3. Audit of Public Corporations and State Owned Enterprises by the Audit Service
According to the Public Financial Management Act 921, public corporation” means a body corporate established under an Act of Parliament in accordance with article 192 of the Constitution while a state-owned enterprise” means an entity whether incorporated or not under the Companies Act, 1963 (Act 179) whose shares are wholly or partially held or controlled by Government.
It is worthy of note that pursuant to the Statutory Corporations (conversion to companies) Act, 1993 (Act 461) thirty-two (32) specified statutory corporations were converted into companies limited by shares, and most public corporations have since converted to limited liability companies. The converted entities now have the principal objective of profitability, with less public sector involvement to operate more independently from Government.
In what appears to the extension of the A-G’s constitutional mandate, regulation 27(1)(f) of Audit Service Regulations, 2011 (C.I.70) stipulates that the Service shall carry out the external auditing of bodies established with public funds including corporations, companies and other enterprises. Arguably, this regulation transcends the provisions in article 187 of the Constitution, section 11 of the Audit Service, 2000 (Act 584) and the Public Financial Management,2016 (Act 921) as external auditing of companies is not based on the Constitution. Besides, section 95 of the Public Financial Management Act 921 requires the governing body of a Public Corporation or a State Owned Enterprise to cause to be prepared, not later than two months after the end of each financial year, an annual account in respect of that financial year; and submit to the Minister, not later than four months after the end of each financial year, an audited financial statement. Moreover, regulation 204 of the Public Financial Management Regulations, 2019 (L.I. 2378) clearly states that the annual financial statements of a Public Corporation or a State Owned Enterprise shall be audited by an external auditor licensed under the Chartered Accountants Act 1963 (Act 170) and appointed by the A-G and in accordance with International Standards on Auditing.
4. Qualification of external auditor required by Companies Act 992 enacted in 2019
In Ghana, the Companies Act 992 (CA 992) consolidates the laws relating to companies and also establishes the Office of the Registrar of Companies whose object is to register and regulate all types of businesses in conformity with the Act and any other relevant enactments. Section 18(1) of CA 992 states that a company shall have full capacity to carry on or undertake any business or activity, do any act, or enter into any transaction; and full rights, powers and privileges for the purposes of undertaking any business or activity. A company is essentially an artificial person, an entity separate from the individuals who own, manage, and support its operations whether owned by a government or a private individual.
Furthermore, section 138 (1) of CA 992 specifies that, “a person is qualified for appointment as an auditor of a … company, if that person is qualified and licensed in accordance with the ICAG Act, 1963 (Act 170)” as amended. Besides, section 34(1) of ICAG Act 1058 which currently regulates the accountancy profession and practice in Ghana, stipulates that a person may engage in public practice of accountancy if that person is a full member of the institute and has been issued with a public practice licence … by the institute. Section 35(1) of the same CA 992 clarifies that “a person is engaged in public practice of accountancy if that person in consideration of remuneration received or to be received offers or performs a service involving auditing or verification of financial transactions...”
Section (43) of the ICAG Act 1058 also requires a firm registered under the Act to obtain professional indemnity insurance in the prescribed manner, to cover any liability which may be incurred as a result of the negligence or recklessness in the conduct of the practice of the firm. This requirement is in accordance with section 142(2) of Act 992 which states that the auditor of a company shall not be relieved from the fiduciary duty and the liability incurred as a result of a breach of that duty.
A review of firms that have fulfilled all the prescribed requirements of ICAG with licences valid until 31 December 2022 available at https://icagh.org/wp-content/uploads/2022/07/2022-List-of Licensed-Firms-in-Good-Standing-W.pdf indicates that the Ghana Audit Service (GAS) is excluded from the 333 firms licensed by the ICAG to engage in the public practice of auditing limited liability companies including state owned companies (SOCs). Moreover, neither the A-G nor the Deputy A-G who heads the Commercial Audits Department (CAD) that is responsible for the audit of Public Boards, Corporations, … and other Statutory Institutions now including SOCs as indicated earlier, has not been issued with a public practice licence to engage in the public practice of accountancy. Inquiries from the ICAG’s Quality Assurance and Monitoring Department confirm that the Institute cannot issue practising licence and certificates to GAS and its staff because they do not apply the International Standards on Auditing (ISA) and the staff do not have four years of practice experience in a private audit firm in accordance with section 30(1) of Act 1058 that states that, “A Chartered Accountant shall perform an audit in accordance with (a) the requirements of the international auditing standards issued by the International Auditing and Assurance Standards Board and adopted by the Institute; and agreed procedures specified in a client contract.”
The objectives of government auditing for Parliament’s use per the International Standards of Supreme Audit Institutions (ISSAI) comprise the proper use of public funds; the development of sound financial management; the proper execution of administrative activities; and the communication of information to public authorities and the general public through publication of objective reports. These objectives are not the same as those of independent auditing required by the Companies Act.
5. A-G’s Appointment of Ghana Audit Service as Auditor of State Owned Companies
As discussed earlier, the GAS currently audits most large SOCs and charge amounts similar to previous fees charged by the independent auditors appointed for the SOEs. Interestingly, GAS requests the SOCs to pay specified amounts for incidental expenses into an account entitled “Director of Audit, Finance & Administration” opened with the Bank of Ghana. The charging of SOCs for audit incidentals is also in contravention Article 187 (11) and (14) of the 1992 Constitution and section 26 of the Audit Service Act, 2000 (Act 584)
In spite of regulation 204 of the Public Financial Management (PFM) Regulations 2016 requirement for the Auditor-General to appoint external auditors licensed under the Chartered Accountants Act 1963 (Act 170). The following are the SOCs listed in the 2020 State Ownership Report (SOR) as audited by GAS
- Bulk Oil Storage Transport Company Ltd
- Electricity Company of Ghana Ltd
- Ghana Water Company Ltd
- Graphic Communications Company Ltd
- Ghana Post Company Ltd
- Ghana Fair Trade Ltd
- Ghana Cylinder Manufacturing Company Ltd
- PSC Tema Shipyard Ltd
Technically, the selection and appointment of independent auditors for SOCs should be made by an ICAG licensed auditor.
b. Late submission of audited financial statements by SOCs. Financial reporting requirements for SOEs are specified in the PFM Act, 2016 (Act 921), PFM Regulations, 2019 (L.I. 2378), and State Interests and Governance Authority (SIGA) Act, 2019 (Act 990). Particularly, section 95 of the Act 921 requires the governing body of an SOE or SOC to cause to be prepared and submitted accounts and audited financial statements to the Finance Minister in respect of that financial year, not later than two or four months respectively after the end of each financial year. In partnership with the Ministry of Finance (MOF), SIGA prepares annual SORs as part of the key tools to ensure effective oversight of Government’s equity investments. The report includes a section on financial reporting and compliance to provide detailed insight into how SOEs are responding to their reporting and disclosure obligations under the PFM Act 921.
A review of the SORs issued to date indicates low compliance by the SOEs with the reporting and disclosure provisions governing their operations including CA 992, PFM Act 921 and its associated Regulations (L.I. 2378). For instance, it is reported in the 2020 SOR that only (79) Specified Entities out of 177 submitted audited FS for the financial year 2020 to SIGA and the MOF. The low compliance of the SOEs has been ascribed to the untimely appointment of their external auditors by the A-G, resulting in their inability to meet the deadlines for submission of audited financial statements, as the appointments are mostly done well beyond the deadline for submission of audited financial statements by SOEs (2018 SOR). In response to questions posed by the editorial team, the A-G maintained that “the mandate of the Auditor-General is not affected by the status of some SOEs as LLCs and also explained among other reasons that “unforeseen delays in the procurement process for appointing auditors under the Public Procurement Act” and “a level of misconception among certain SOEs as [Limited Liability Companies] LLCs concerning the Auditor General’s mandate to audit them, notable among them VALCO and Tema Oil Refinery (ToR)” (2018 SOR).
c. Issues identified by the review of audited FS of a selected SOE signed the A-G
A comprehensive review of the 2018 and 2019 Financial Statements (FS) of an important State-Owned-Company audited by the Ghana Audit Service (GAS). The Report of the Directors signed on 22 April 2021 is not in line with the requirements of Section 136 of CA 992 in many material respects: there was no disclosure of the audit remuneration of GHS250,000; the disclosure on the state of affairs and dividend paid was inadequate (the only disclosure ‘a net loss of GHS2,585.15 before tax’), there was also no disclosure on particulars of entries in interests register; nothing was disclosed on corporate social responsibility nor steps being taken to build the capacity of Directors.
On page 1 of the 2018 FS that covers details of Corporate Information, it is disclosed that the auditor is Ghana Audit Service, however, note (e) of the report of directors on page 2 states that, “in accordance with section 134(5) of the Companies Act 1963 [the previous private audit firm] shall continue in office as Auditor of the Company.”
- Misstatement of inventories in the 2018 FS as GHS191,822,000 instead of GHS387,962,000 due to casting error. Surprisingly, the misstatement is repeated in 2019 FS as comparative.
- Poor presentation of the audit report with many editing and formatting issues, audit reports for both years require serious editing.
- The audit report is signed by a Deputy A-G on behalf of the A-G but it is not dated. There is no ICAG licence number provided to confirm that the GAS or the DA-G is licensed by the ICA.
- There were many casting errors in both the 2018 and 2019 financial statements
Significantly, regulation 5 of Audit Service CI 70 requires the Board of GAS to establish a system to ensure that appropriate quality control standards are developed and used in monitoring and evaluating audit work carried out by individuals and institutions appointed by the A-G to carry out work on behalf of the A-G. Besides the International Standards on Auditing (ISA) 200.3 highlights that the purpose of an audit of FS is to enhance the degree of confidence of intended users in the FS through an expression of opinion by the Auditor on whether the FS are prepared, in all material respects, in accordance with an applicable financial reporting framework. The errors outlined above would definitely detract from the degree of confidence place by intended users in the 2018 and 2019 audited FS of the company.
d. Lack of value addition of the A-G audit to the SOEs
A Director of Finance of an SOE who previously worked in an audit firm was interviewed to share his experience and observations on the GAS audit of his company in the last two years. The summary of his response raised the following key concerns:
“Though some areas of the GAS and private firm’s audit procedures are the same, they are, however, entirely different in most important areas: For instance, the auditors of GAS do not set and communicate materiality levels for the audit to the auditee so a lot of time is spent on less important or immaterial observations or queries. Consequently, the more important issues like the review of business strategy or the success of the business are not given due consideration. ISA200.6 requires the concept of materiality to be applied by the auditor both in planning and performing the audit, and in evaluating the effect of identified misstatements on the audit and of uncorrected misstatements, if any, on the FS.
GAS normally requests for the annual trial balance and draft accounts, and other schedules including fixed assets, inventory, etc. before they commence their fieldwork. However, the audit staff are only interested in contracts, invoices, and payment vouchers. Eighty (80) percent of their work is what an audit assistant in a private firm of auditors would do; vouching entailing verification of documents.
On the question of value addition to the entity, he responded that, “there is minimal benefit, there is no value added, the only value derived is the signing of the accounts for filing with the authorities.” Credible audits of FS reinforce investor confidence and they add to board and management’s understanding of the business and the risks it faces. Skilled and experienced audit professionals are expected to work with their auditees to understand the changing business environment and to add value beyond the FS through the business insights they bring to engagements.
“During the audit they send observations in batches, and then exit the audit without holding any formal discussion of the observations. They expect us to respond within 30 days after they had submitted the observations in batches without considering the need for formal discussion in a meeting.” This response is not in line with Regulation 34 of Audit Service (CI 70) which requires a team leader to formally issue audit observations made within two weeks after completion and the audit team to take steps to fully discuss the findings and recommendations arising from the audit with the auditee, and obtain written responses from the observations made before leaving the audit location. Moreover, ISA 230. 10 requires the auditor to document discussions of significant matters with management, those charged with governance, and others, including the nature of the significant matters discussed and when and with whom the discussions took place.
“There is no risk and internal control review or system documentation; they do not apply systems or risk based auditing. They merely conduct substantive auditing comprising verification of documents. Independent private auditors do not just focus on the numbers but they gain an understanding of the businesses overall systems and control environment. This enables them to identify deficiencies in the accounting systems or controls for which recommendations can be made, making the business more efficient and less prone to fraud or error.”
System-based auditing consists mainly of study and evaluation of the system of internal control for the period subject to the audit; and actual verification of assets, liabilities, revenues, and expenses which, together with the assurance provided by the system of internal controls, provide sufficient evidence to support the expression of an opinion on the financial statements. The use of system-based auditing enables audit work to be reduced to the minimum level consistent with an effective audit, it provides management with an independent and objective analysis of any weaknesses in internal controls, and is particularly suited to the audit of computerized systems.
They do not consider and reflect post balance sheet events. ISA 560.5 requires the auditor to perform audit procedures designed to obtain sufficient appropriate audit evidence that all events up to the date of the auditor’s report that may require adjustment of, or disclosure in, the financial statements have been identified.
e. A critical review of A-G’s report on Public Boards, Corporations and other Statutory Institutions for the period ended 31 December 2021
A detailed and critical review of the above report reveals a lot of issues requiring attention. Firstly, as shown in Table 1 below, out of the GHS17.48 billion reported as irregularities by the A-G, GHS48.48 million is an overstatement due to currency translation errors caused by the posting of cedi amounts in the USD column of the summary table and retranslating into cedis. Secondly, the analysis of the detailed report indicates that over GHC16.35 billion, 94% of the total amount reported as irregularities represented outstanding receivables or loans overdue of large SOEs like VRA, ECG, NEDCO, SSNIT, COCOBOD, GNPC, and BOST. Significantly, most of the receivables were amounts due from the Government of Ghana, MDAs and customers of the utility companies.
According to the A-G, the outstanding debts or loans of the entities contravene section 91(1) of the PFM Act 921, which states as follows:
(1) The Board of Directors of a PC to ensure the efficient management of the financial resources of the PC including the collection and receipt of moneys due to that corporation; and
(2) Where a PC wilfully or negligently fails to ensure that moneys due to it are collected or received, the Minister shall, upon the recommendation of the A-G, withdraw or suspend the emoluments of the members of the governing body of the PC, either jointly or severally.
A careful consideration of the above provisions indicates that the A-G has misinterpreted the above PFM Act 921 in his consideration of the amounts outstanding as irregularities as subsection specifies that on the wilful or negligent failure of the PC to ensure that moneys due it are collected or received, the Minister shall, upon the recommendation of the A-G, withdraw or suspend the emoluments of the members of the governing body of the PC, either jointly or severally. It therefore goes without saying that the amount of GHC16.35 billion or 94% of the total irregularity amount of GHC17.48 million is a gross misstatement by the A-G, as the non-collection of the amount owed by the Government to an SOE can hardly be treated as financial loss or due to corruption. Unfortunately, the A-G’s reporting of irregularities without appropriate clarification on whether the irregularity or the non-compliance resulted in a financial loss or whether there was any fraud involved led the media and the Ghanaian public to equate all financial irregularities as the leakage of public purse or corruption. It must be noted that such clarification would require further work or investigation which will facilitate the A-G’s compliance with Article 187(7)(b) that requires the A-G to disallow and or surcharge any item of expenditure which is contrary to law. This will help the A-G to meet the long standing expectation of OccupyGhana and the Ghanaian public. Importantly, the GAS recognised the public’s expectation of recovery of the reported irregularities in its Medium Term Expenditure Framework (MTEF) for 2017-2019 as far back in 2017:
“The major shortcomings of the audit reports issued so far were their failure to institute effective internal control measures to minimize instances of financial malfeasance … and that their irregularities are receiving attention for its recovery and when realized may constitute quantitative savings for the government as a result of our audit impact” (Ghana Audit Service, 2017).
Instructively, the Auditor-General of South Africa has provided a clear approach to the reporting of irregularities in the Consolidated General Report of the Auditor-General of South Africa on National and Provincial Audit Outcomes - PFMA 2018-19. The report provides a clear distinction between irregular expenditure and material irregularities. An irregular expenditure is all expenditure where there was non-compliance with legislation in the process leading up to the payment and they do not necessarily result in financial loss are not due to corruption. In contrast, a material irregularity also stems from non-compliance with legislation, but it has a broader scope and can be applied to fraud and theft and to a breach of fiduciary duty. When an irregular expenditure is identified, further work is required to perform an investigation to determine the impact by considering if the non-compliance resulted in a financial loss or whether there was any fraud involved, and if an official should be held accountable. Applying this to the above reported irregularities of Government’s indebtedness to SSNIT of GHS4.3 billion or on the reported outstanding debtors/loans recoverable irregularities of GHC16.35 billion, further work by the A-G could have determined the financial loss to SSNIT in interest costs, and if upon further investigation it is confirmed that the non-collection of the debt resulted in say, interest costs on overdraft that could have been the financial loss.
Furthermore, of the cash irregularities reported, GHC230.70 million represented Cocoa Board’s principal repayment to Bank of Ghana because it was not included in the entity’s annual budget appropriation, and therefore, the A-G concluded that management misapplied GH¢230.70 million and thereby violated all the relevant sections of P.N.D.C.L. 265 and L.I. 2378. Section 22 (2) of the Ghana Cocoa Board (Amendment) Law, 1991 (PNDCL 265) requires the expenditure of the Board to be in accordance with its estimates as approved by Parliament while Regulation 78 (1d) of the PFM Regulations L.I. 2378 also states that a principal spending officer of covered entity is personally responsible for ensuring in respect of each payment of that covered entity, ‘that there is a sufficient unspent amount of an appropriation for making the payment. Based on the above provisions, the treatment of the amount of GH¢230.70 million for the repayment of loan principal to Bank of Ghana,
by the A-G as an irregularity that results in financial loss is questionable, as it does not necessarily result in a financial loss, that can be recovered. Together, cash and receivables/loans represent 97% of the GHS17.48 billion reported as irregularities in the A-G’s report which are not necessarily financial losses or deficiencies. Therefore, the Ghanaian public’s expectation of the A-G’s recovery through surcharging and disallowance to retrieve the GHS17.48 is without substance. Regrettably, the release of the figures led to demonstrations by the CSOs who have mistakenly equated the reported irregularities as entirely related corruption. Even before Parliament considers and debates the report, the President has already instructed the Head of SIGA to work with the A-G and name the perpetuators of the infraction. The absence of the A-G’s further work to determine the impact of the irregularities in financial losses to facilitate the issue of certificates o surcharge has contributed to the public’s conclusion that all irregularities are financial losses and corruption and must be recovered, hence, certain CSOs have reminded the A-G of his contempt of the Supreme Court by refusing to issue certificates of surcharge. For instance
- OccupyGhana wrote to the A-G on 7 September 2022 and demanded that he issues forthwith disallowances and surcharges to all persons he identified as having been either engaged in or responsible for the illegal use of government funds in his 2019 and 2020 Audit Reports, else he would be in contempt of the Supreme Court. They continued that his “Reports are replete with ‘irregularities’ that have led to the loss of huge amounts of government funds, which article 187(7)(b) of the Constitution calls (i) ‘expenditure which is contrary to law,’ (ii) sums ‘not been duly brought into account’ and (iii) ‘loss or deficiency [through] negligence or misconduct”(Myjoyonline, 13 September 2022).
- On July 8, 2022, News Ghana wrongly carried the headline that, “Ghana Lost GH¢17.4 Billion to Corruption” On July 8, 2022, News Ghana carried the headline that, “Ghana Lost GH¢17.4 Billion to Corruption” reporting that the North Tongu MP Samuel Okudzeto Ablakwa who bemoaned this development said:
“Even as the Akufo-Addo government commences IMF bailout negotiations, the tragic irony is that corruption is now totally out of control. The latest 2021 Auditor-General’s report … indicates that financial irregularities have worsened from the GHS12.8billion recorded in 2020 to a gut-wrenching GHS17.4billion” (NewsGhana, 8 July 2022)
Also, on 31 August 2022 a news headline in the Ghanaian Times “Ghana: Leakage of Public Purse - Gh¢17.4 Billion Missing ... A-G Attributes Losses to Irregularities, Non-Compliance to Laws” (allafrica.com, August 2022).
Article 187(5) of the 1992 constitution requires the A-G to draw attention to any irregularities in the accounts audited and to any matter which in his opinion ought to be brought to the notice of Parliament for its debate and dealing with matters arising. Article 187(7)(b) continues that the A-G may disallow any item of expenditure which is contrary to law and surcharge as outlined by OccupyGhana above. However, irregularity” is not defined in the 1992 Constitution, PFM Act 921 or the Audit Service Act 584 but the Cambridge Dictionary defines irregularity as something that is not according to usual rules or what is expected, and often not acceptable. Section 1 of the Audit Profession Act (APA) of South Africa, provides a comprehensive definition of “reportable irregularity” being any unlawful act or omission committed by any person responsible for the management of an entity, which (a) has caused or is likely to cause material financial loss to the entity or to any stakeholder of the entity in respect of his, her or its dealings with that entity; or (b) is fraudulent or amounts to theft; or (c) represents a material breach of any fiduciary duty owed by such person to the entity or any stakeholder of the entity under any law applying to the entity or the conduct or management thereof
6. Conclusions and recommendations
The conduct of the of the Office of the Auditor-General, raise important questions that touch on possible breaches of the 1992 Constitution, the PFM Act 2016 (Act 921) and Regulations, L.I. 2378, and the Companies Act 2019 (Act 992). The charging of incidentals or fees by the Audit Service flies flat in the face of the law as the Constitution and the Audit Service Act 584 do not make any provisions for the charging of ‘incidentals for audit fieldwork and logistical cost.’ The study has shed more light on the GETFund Administrator’s questioning of the competence and actions of the A-G which can be said are not necessarily in line with the 1992 Constitution and the extant Public Financial Management rules. It has also been confirmed that there is a conflicting role in the A-G’s self-appointment as auditors for State Owned Enterprises instead of appointing auditors for SOEs. The the State Enterprise Audit Corporation, 1965 (L.I. 468), was enacted in 1965 for the conduct of the audit of PCs and SOEs with the private firms so that the Audit Service and the A-G would focus on the audit of public accounts as provided in the Constitution.
It is difficult for the governing bodies of SOEs to manage the conflicting provisions of the PFM Act 921 and CA 992, particularly, with the appointment of qualified auditors stipulated in section 138 and 139 of CA 992 and the PFM Regulation 204 requiring A-G to appoint auditors for the SOEs without regards to the governing bodies or the Board of Directors.
It is about time the Institute of Chartered Accountants, Ghana (ICAG) became more active in its role as the regulator of the accountancy and audit profession to make the nation feel its impact as a strong professional establishment by coming out with pronouncements on such matters of national interest as to what the A-G can do and cannot do.
With SIGA’s mandate for the oversight of GoG’s interests in the SOEs, SIGA and the Ministry of Finance would need to engage the Audit Service and the SOEs in order to streamline the appointment process of independent auditors for the SOEs. The participation of SIGA and the ICAG may be required here to ensure the interests of the SOEs are secured in the appointment of qualified auditors specified by the Companies Act 992. This would have favourable implications on the SOEs’ financial reporting compliance requirements under the Companies Act 2019 (Act 992) and Public Financial Management Act 2016 (Act 921).
As observed by auditees of SOEs there are various lapses in the current practice of A-G’s self appointment as auditor of the SOEs. For instance, the objectives of governmental and independent auditing are different. As already shown the focus of governmental auditing on compliance has led the A-G to treat account receivables of companies as irregularities and financial losses. It was also shown that the extension of the A-G’s mandate has led to the neglect of the requirement of Article 187(7)(b) for doing extra work to issue surcharges and disallowances. One may argue that the A-G and the Audit Service are trying to be a jack of all trades, instead of ‘directing the whole force of the mind to one particular object’ of auditing public accounts and issuing surcharges and disallowances as stipulated the in Article 187 of the Constitution.
The intervention of Parliament may also be required in clarifying the mandate of the A-G and the Audit Service under Article 187(2)(5)(7) of the 1992 Constitution to ensure the timely production of reports that are useful to Parliament and its Public Accounts Committee to enable Parliament to effectively carry out its important role of executive oversight. Again, more focus would be required for the A-G to produce work of required quality to meet the requirements of the High Court (Civil Procedure) Rules 2016 (C.I. 102). This will ensure that moneys are recovered from the certificates of surcharge and disallowances issued by the A-G against individuals, organisations and institutions who committed financial infractions is addressed. The Board of Ghana Audit Service needs to introduce relevant amendments to the Audit Service Act and Regulations to incorporate the operationalisation of the Supreme Court’s ruling on Surcharges and Disallowances
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