Auditors must maintain highest level of integrity and independence
Prasad POLWATTE
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Auditor General S. Swarnajothi.
Picture by Rukmal Gamage |
As the country’s sole financial watchdog, the Auditor General’s
Department has been auditing all Government institutions including the
Local Government bodies and reporting to the Parliament of Sri Lanka on
how these institutions have spent public funds.
The Auditor General’s Department has been tasked to assure the
Parliament of Sri Lanka that the Government’s financial activities are
carried out and accounted for in keeping with the intentions of the
Legislature.
The Auditor General’s Department established by the British
rulers over 200 years ago in Sri Lanka has to report on how the
Government institutions are spending the public funds for approved
purposes and highlights the issues that requires the urgent attention of
the Legislature.
The role of Auditor General is very important in ensuring the
integrity and accountability of any systems of government. The
independence and high degree of professionalism in the Auditor General’s
Department has earned public credibility.
Being the 38th Auditor General of Sri Lanka, S. Swarnajothi
says the duties of professionals may be affected if personal objectives
surpasses their integrity and independence.
In an interview with the Daily News he said the country has
seen a massive deterioration in all areas including auditing and
financing. There is total deterioration of people’s thinking and
attitude, he said. As auditors we have to maintain the highest level of
integrity and independence. Our professional duties may be affected if
we give priority for our personal objectives, he said. Swarnajothi said
that the officers in his department have been exercising the highest
degree of professionalism and independence in the discharge of their
duties.
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The Interview:
Q: Can you briefly explain your authority, duties and
responsibilities?
A: I have been appointed by the President of Sri Lanka under Article
154 of the Constitution of Sri Lanka. I shall audit the accounts of all
public institutions including the offices of Cabinet of Ministers and
Parliamentary Secretary General and the Judicial Services Commission. My
report for each and every public entity should be presented to
Parliament.
Government officers are the custodians of the public funds and my
department’s responsibility is to ensure that these public assets are
utilized for approved purposes and adequate returns are derived from
these assets.
Apart from the Constitution, I have been empowered to audit all local
government bodies and the institution coming under the Provincial
Council and Local Government Act.
In addition, all sports associations and Agrarian Services Councils
should be audited by the Auditor General’s Department and the report has
to be submitted to the relevant ministries. We have also been tasked to
audit the Government projects too.
Q: What is your perception on audit quality in developed countries for
example Sub Prime Mortgage crisis USA, Enron, World Com?
A: The world has seen massive deterioration in all areas including the
accounting and auditing. The professionals lose their integrity,
impartiality and independence if they become ego ridden.
Majority in the society are going after money and professionals do
not maintain high standard of ethic in their dealings. The auditors
should also receive the blame for the collapse of corporate giants. If
they performed their duties properly, these things could have been
averted.
It is not country that matters for the collapse of corporate giants,
the ethical behaviour of professionals.
The non-compliance with professional ethics and also greed for
short-term profit have resulted these collapse.
If the auditors fulfilled their duties properly using their
professionalism, we will not see the collapse of corporate giants in Sri
Lanka. There are reputed professionals who were involved in auditing the
corporate giants in Sri Lanka. They have not executed their duties
properly and this has resulted in the collapse of such corporate
ventures.
I feel that the independence of auditors in the private sector has
been affected.
They are not in position to take a right decision at the right time
using their professionalism. This situation has also averted them to
identify the problems that caused the collapse of corporate giants in
Sri Lanka.
The auditors in the Public sector are very independent as they do not
rely on anyone for salaries or perks. There are several regulatory
bodies in Sri Lanka. They should carry out their duties properly to
identify problems in the corporate sector at the early stage.
Q: What is your perception on audit quality in Sri Lanka for example
The Finance, Golden Key and Ceylinco Sri Ram?
A: Most of these companies have shown a significant drop in profits
or incurred losses in 2008. Most of these companies maintained the same
volume of assets and liability structures of previous years. Further
their core business management team and business processes have not
changed.
The associated business risks of these companies were not been
identified and precautionary measures were not taken accordingly.
Unfortunately in our country the media academics, professionals and the
civil society do not get involved in rectifying these malpractices.
Q: What is your perception on good governance? Is it an eyewash? Do
you think that good governance help detect businesses collapse
beforehand?
A: Accountability, transparency, responsiveness, equitability and
effectiveness and efficiency are among the major cornerstones of the
Good governance. Governance in the private or public sector starts from
the standards of behaviour.
No one can even think of good governance without the standard of
behaviour. Good governance in the public sector begins from the standard
of behaviour. But the private ventures such as The Finance, Golden Key,
Ceylinco Sri Ram do not seem to have such kind of behavioural standard.
These institutions did not have proper organization structure,
external reporting system nor any control system.
Good governance cannot be expected from the public or private
institutions which recruit unqualified and unskilled personnel to their
staff. Good governance is no more in institutions when there
recruitments to the private or public sector are not made without the
following proper procedure.
There are a number of blue chip organizations in the public and
private sector which has showed outstanding performances. These
organizations are profitable due to the proper code of conduct and sound
organizational structure.
It has been proved to the world that private sector ventures are
worse than public institutions in terms of accountability,
organizational structure and transparency.
Our State banks are performing very well. Their audit reports are
clean and they provide good customer care and earning profits.
Q: Certain Government institutions are in competitive business with
the private sector and also they have to maintain some degree of
confidentiality regarding critical business information. As Auditor
General how flexible are you in this dilemma?
A: The Auditor General’s Department understands the significance of
confidentiality on business information. The senior management may have
the custody of confidential information and also senior officers of AG’s
Department can be assigned to verify this information. Such information
could be presented to the Deputy Auditor General in charge of media or
directly to me. The confidentiality of such information is retained.
Q: Can a Public Sector company be flexible from AR and FR in making
prudent business decisions?
A: The Officers in the public sector are risk aversive and show
reluctant to take prompt decision. They pay serious attention on
Financial Regulations FR and Administrative Regulations before decisions
are taken.
The private sector is far ahead of the public sector in terms of
decision making as the FR or AR does not apply to them. The main reason
for the collapse of private financial institutions is that they have not
complied with the Central Bank guidelines. Personal favoritism
transcends all rules and barriers that have been put in place by
themselves in private sector institutions.
But no one can surpass the legal framework of public institutions.
Everything should be done within those boundaries. Even the Finance
Minister cannot obtain loans from the State Banks without following the
proper procedure.
The AR and FR are mandatory to the Government departments. But the
corporations and the government owned companies that are engaged in
businesses can develop their own procedure within the regulatory
parameters and this should be approved by the regulator before the
implementation.
If such procedure goes beyond the existing legal parameters, Cabinet
approval should be taken for the implementation of such method.
Q: What is your general opinion of our public sector? Is it
productive and efficiently managed?
A: I am not the person who believes that the private sector companies
are well managed. It has been proved that certain private sector
companies have failed in the past. They lack integrity and all other
aspects of good governance.
It is not the ownership, what matter is good management to improve
productivity and efficiency. Certain Government institutions such as
State banks provide good customer care and generate profits. Not all
private sector companies are efficiently managed. Some family companies
are under-capitalized and some are incorporated for siphoning out taxes
or to grab a short term profits and some managers do not possess the
required skills and qualifications.
However incantatory ownership is also a matter in running a business
profitably. An owner of a private company may not like to continue his
business with losses and also the private sector rewards employees on
performance.
Q: What type of audit findings are referred to COPE? How effective is
the COPE in resolving audit issues?
A: Long unsettled audit queries are reported to the COPE auditee is
given adequate time to rectify the situation. The objective is to
minimize COPE reporting. But the AG’s Department needs the support from
the client institutions by timely answering the audit queries and also
taking remedial steps on system weakness.
On average the AG’s Department has given 7 percent of unqualified
(clean) reports to its clients, 77 percent qualified reports and the
balance 16 percent disclaimer reports. The AG’s Department is trying its
level best to increase the number of unqualified reported clients.
The writer is a Chartered Accountant |