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Auditor-General’s compliance in audit of state-owned companies: Critical evaluation

BY: Valentin Kwasi Mensah, (FCCA, PhD, MBA, CIA)
 A Public Accounts Committee sitting
A Public Accounts Committee sitting

The first part of this article was published on Monday, October 24, 2022 

However, Article 187 (9) 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 14 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 is 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.


Deliberations

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 GH¢8,465,250,157 identified as irregularities in the various reports submitted to Parliament in 2018, only GH¢67,315,066 (7.95%) had been recovered from the perpetrators.

Furthermore, they noted that nothing was recovered from the 112 certificates of surcharge and disallowances of GH¢511,211,239.04 issued against individuals, organisations and institutions who committed financial infractions, as announced by the A-G on November 30, 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 the 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.”

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 organisations, as well as a high level of professional judgement 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, the Wealth of Nations (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), 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 be 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.

The writer is an auditor

To be continued