Effectiveness of Government Audit System

in Sri Lanka

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Effectiveness of Government Audit System

Shakthi S.V. Fernando

BSc. Financial management(Special)-Undergraduate

Sabaragamuwa University of Sri Lanka

Janith Perera

BSc. Financial management(Special)-Undergraduate

Sabaragamuwa University of Sri Lanka

Chandi M. Damayanthi

BSc. Financial management(Special)-Undergraduate

Sabaragamuwa University of Sri Lanka

May 2014

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AbstractThis study is an Evaluation of the effectiveness of Government Audit System in Sri Lanka

with respective to powers of Auditor General and COPA/COPE. Basically it indicates the

effectiveness of Government Audit System in Sri Lanka under powers of Audit General and

impact of Government Audit System to COPE/COPA.

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Content

Introduction 04

Powers of Auditor General 05

Impact of Government Audit System to COPE/COPA 06

References 11

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IntroductionGovernment audit system has been created & formed in order to fulfill the statutory

duty of providing an overall view on the different sector of government. Specially, it’s

regarding the financial management of entities who are the responsible for managing

the public funds in implementing development tasks of the government. The entity

which has been formed with the purpose of providing an overall view on the

performance of public entities Auditor General’s Department.

Auditor General is considered as an independent party. The independent of the

Auditor General is preserved by the constitution itself & the article 153. It states that

Auditor General only can be appointed & removed by Parliament. Same as that the

Auditor General does not come under the supervision of any minister or office of the

government. It is identified as the prime organization responsible for reviewing the

affairs of the public organizations & reporting to Parliament. It is making every

possible effort to rectify the situation by showing & leading the correct path, in order

to have a better financial management & good governance of the public sector with

the intention of contributing to the development of our country.

An efficient government Audit system is considered as an essence in order to manage

finance in public entities. It is taking in to account as a mandatory requirement since

public funds are managed by those entities. Then an efficient government audit

system is identified as a core feature in country’s economy with the step toward its

development. It is one of the reasons that the Auditor General is considered as an

independent party by the constitution itself. The power of Auditor General which is

provided by the constitution assures the effectiveness of the entire government audit

system. Then Auditor General can freely provide an overall view about the

implementation of total government system. On the other hand it ensures the

effectiveness of COPE committee. Auditor General provides the guidance for the task

of preparing COPE report. As well as Auditor General is one of the parties who

involves to the function of performance evaluation of government entities with the

COPE committee.

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Powers of Auditor General

As above stated Auditor General is recognized as an individual party who is free to

provide his overall view about government sector without any hesitation. The

constitution itself has made that happen by giving constitutional powers to Auditor

General has a fully independent party.

Auditor General is appointed by the president. The salary of the Auditor General is

determined by Parliament & it will be charged on the consolidated fund & it is not be

diminished during his term of office. Auditor General only can be removed by the

president due to ill health or physical or mental infirmity or upon an address of

Parliament other than his death or resignation or retirement. Whenever the Auditor

General is unable to discharge the functions of his office, the president may appoint a

person to act in the place of Auditor General.

The Auditor General shall audit the accounts of all government entities vested in the

government under any written law. Auditor General shall also perform & discharge

duties in functions which have been prescribe by Parliament by law. The Auditor

General or any person authorized by him has the power to access to all books,

records, returns & other documents, to access to stores & other properties, & to be

informed with such information & explanations as necessary for the performance of

duties & functions.

All the above stated functions are based upon the power of the Auditor General by the

constitution which has made him a free & autonomous party. That power is provided

to him in order to present & overall view which is independent & significantly fair.

Since the Auditor General is not bound with any public entity, he can freely provide

his independent view without any bias. It has made be government audit system an

effective one. Government audit system has got the ability to implement its auditing

process without any interference of any party, since the Auditor General is an

independent party. As well as all the government entities are legally bound to provide

all the information regarding any matter. It has made the government audit system

more effective.

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Impact of Government Audit System to

COPE/COPA

The need of strengthening and enhancing the capacity of the Auditor General’s

Department and the COPE secretariat is strongly recommended by the Committee

since the efficiency and the effectiveness of the Committee depend on these two

important elements to a greater extent. Giving an opportunity to gain experience and

knowledge on the practices related to oversight committees in other countries may be

instrumental for them to cater a better contribution towards the Committee.

It is the view of the Committee that the aspect of performance audit should be

extended further in addition to the traditional financial auditing in order to assess the

achievement in relation to the economy, efficiency and the effectiveness in the

employment of available resources by the public enterprises. The performance audit

carried out by the Auditor General’s Department in relation to the solid waste

management in urban councils, matters related to the Timber Corporation and the

environmental issues in consequence of the non-closure of the deserted mines could

be noted as commendable initiatives taken by the Auditor General’s Department in

implementing this new type of audit practiced in the country. The following measures

are recommended to adopt in order to increase the effectiveness of the COPE.

As and when it is necessary, the Committee will make On-the-spot inspections into

selected institutions to get a broader understanding on the matters needed to be

investigated. Initiating this practice, the Committee has already made On-the-spot

investigations into the Sri Jayewardenepura Hospital, Institute of Tourism and Hotel

Management and on the directive of the Committee the Auditor General had made a

special investigation into the matter related to the import of contaminated fuel by the

Ceylon Petroleum Corporation of which the report had already been submitted to the

Hon. Speaker.

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The COPE will specify legal, disciplinary, recovery and corrective actions

immediately on completion of the meeting with the institution. Doing commitment on

each action will be tied to a time frame. As well as Secretariat will make

presentations to the COPE on the progress to follow up action at a special meeting

convened each quarter.

As result of those found wanting for further investigation on fraud, cheating and

corruption to Brought before COPE for detailed investigation, Referred to the relevant

Ministry for action and where appropriate, referred to the Anti-Bribery and

Corruption Commission.

As well as increase the comparative understanding of members, immediate steps will

be taken to set up a data bank or outsource the requirements of a data bank so that the

institutions can be evaluated in a comparative landscape for better performance.

Procedure of presenting COPE report

The findings & recommendation of COPE report will be presented to the parliament

every three months. Then an annual debate will be called within a month release of

the COPE annual report. Furthermore the debates will be called as & when required

based on the quarterly report. After that the COPE secretariat will publish the names

of institutions which have been listed for COPE investigation at least one month

before the institution present. Then the COPE will summon institutions which should

appear before the committee at short notice if warranted. Then the subcommittee will

identified institutions which should be investigated with the assistance of the

secretariat. There will be a grading of government institutions by losses, risk

undertaken, loss of reputation & strategic importance to country. After that an agenda

will be proposed to the COPE which includes a time table. The frequency of an

institution being summon will be based on its grading. Then the report will be

finalized.

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Financial results of examined institutions

In the COPE report, the financial statements of government institutions provide a true

& fair view, by executing rules & regulations of Auditor General. According to COPE

report, the government institutions are subdivided by two categories. They are limited

liability companies & strategic business enterprises and non-commercial public

enterprises.

It can be recognized the effectiveness & orderliness of the Auditor General’s

department by analyzing the financial statements of COPE Committee regarding

above stated two subdivided categories. It has been identified the frauds &

corruptions & the amendment which should be executed within government entities in

2010 by COPE report. Same as that the corrective actions have been provided by

government audit system & the COPE committee.

It is enable to acquire the profitability to some organizations which were sinking on

losses & some organizations which were making losses could reduce their losses in

2011 by implementing those necessary actions which were recommended by COPE

committee & the government audit system. It can be observed not only the

government entities which could improve their financial stability by following

guidance, but also some government entities which neglected that guidance have

become more loss earning entities as the COPE report in 2013. In that case, it can be

concluded that Audit General’s department have enclosed a true & fair view about the

financial statement without any biases. Then there is no any controversy that

government audit system which is executed by Audit General’s department & COPE

committee are effectively implemented within the country. Further it can be

concluded by following sources.Based on the nature of incorporation, the institutions

found under each category had been assigned with the following abbreviations.

LLC - Limited Liability Company

SBE - Strategic Business Enterprise

RMI - Regulatory & Monitoring Institution

UTI - Universities, Research and Other Training Institutions

DNP - Other Development & Non - Profit Oriented Institutions

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Institutions which incurred losses in 2010 but turned into profits in 2011 showing better financial performance

Institutions with either profit increased or loss decreased in 2011 as compared with 2010

No. Name of the Entity Type 2011 Rs.’000

2010 Rs.’000

01. Airport & Aviation Services Ltd.

LLC 3,121,000 1,865,000

02 Ayurvedic Drugs Corporation

SBE 63,879 6,016

03 Bank of Ceylon SBE 15,545,765 10,052,569

04 Central Bank of Sri Lanka

SBE 47,431,799 12,635,220

05 Ceylon Fertilizer Co Ltd. LLC 95,407 73,979

06. Development Lotteries Board

SBE 1,318,519 937,913

No. Name of the Entity Type 2011 Rs.’000

2010 Rs.’000

01. Agricultural & Agrarian Insurance Board

SBE 87,675 (147,407)

02 Associated Newspapers of Ceylon Ltd.

LLC 14,036 (359782)

03 B.C.C Lanka Ltd LLC 7,318 (23,184)

04 National Water Supply and Drainage Board

SBE 474,466 (5,849,894)

05 Paddy Marketing Board SBE 264,126 (346,747)

06 Sri Lanka Cashew Corporation

SBE 20,449 (15,055)

07 Sri Lanka Ports Authority SBE 782,231 (1,248,134)

08 Sri Lanka Ports Authority SBE 17,851 (24,502)

09 Urban Development Authority

SBE 242,576 (275,887)

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07. Mihin Lanka (Pvt) Ltd. LLC (940,489) (1,221,378)

08. National Paper Co. Ltd. LLC (73,713) (212,193)

09. Mantai Salt Ltd LLC 3,876 254

10. People’s Bank SBE 15,310,666 8,771,077

11. Regional Development Bank

SBE 1,478,582 809,668

12. National Livestock Development Board

SBE 250,195 178,945

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REFERENCES

Auditor General’s Department (2007). Annual Report 2007.

Parliament of Sri Lanka website. Retrieved from http://www.parliament.lk/en.

COPE committee (2013). COPE report 2013.