The National Assembly, Government and other key stakeholders have been demanding timely reports from the Auditor General. Hence, the presentation my first annual report in October rather than by the usual ‘December’ deadline.  More efforts are continuing to reduce the time taken to produce annual reports even further and, hopefully, to present them at the end of September each year. With this in mind, the twelve-month audit cycle has been realigned to run from August to July.

This report sets out the results of my audit of the financial statements of the Government for 2016 and various other audits undertaken during the audit cycle ended in August 2017. The report excludes the matters raised in the performance audit report and the special audit report presented to the National Assembly in May and July, respectively. The matters included in this report are selective as they are the matters being brought to the attention of the National Assembly as per my reporting requirements. I am pleased to note that many matters raised in audit management letters issued to Accounting Officers throughout the audit cycle have been dealt with satisfactorily and some of the remaining are not considered significant enough to feature in this report.

The purpose of this report is to:

(a)   Draw the attention of the National Assembly and the Government to matters arising from carrying out my role as the auditor of public sector;

(b)  Comment on various financial management and reporting, governance and administrative issues;

(c)   Highlight some matters of recurring nature and make some observations on the action taken or planned on previous audit reports; and 

(d)  Present the findings from a special review of the effectiveness of ‘school meals’ programme run by the Government for the benefit of several thousand school children in public schools.

The financial statements of the Government are the pinnacle of the public sector financial reporting. My role is to provide assurance to the National Assembly that the Government financial statements properly presents the government’s financial performance and position. The Public Finance Management Act promulgated in November 2012 has now completed almost five years in its implementation. Under the PFM Act, the financial statements of the government have been prepared in accordance with IPSAS-cash basis since 2013.  However, the financial statements are not fully compliant with the requirements of the IPSAS reporting framework, hence the qualified audit opinion. Other issues affecting the financial statements include delays in clearing remittance accounts relating to overseas missions, dishonoured cheques, and unidentified items and late or non-reconciliation of some revenue and expenditure accounts. In addition, the challenge for the accounting and reporting on various grants-in-kind appear to be growing stronger each year. 

I understand that the last five years have been quite challenging for the Ministry of Finance due to various reforms being undertaken, particularly, the PPBB budgeting framework, IPSAS accounting framework, public debt, PFM Regulations and sourcing of accounting function in MDAs, to name but a few. However, in my view, more efforts should be made to ensure that the government’s financial statements are produced timely to enable auditing of the same by the statutory deadline (30th June) and fully in accordance with IPSAS framework to receive a clean opinion.

This report includes also my observations on some statutory bodies which have been receiving government’s financial support in terms of annual appropriations and/or other forms of assistance, such as, levies, income and grants. Their accountability arrangements, however, were found to be weak in that annual financial statements and annual reports were either not produced or produced randomly after significant delays and in poor quality. The statutory provisions relating to accounts and reporting, in many instances, were noted to be inconsistent and/or ambiguous so that the provisions were not enforceable. In a number of cases, there are no legal provisions requiring the statutory bodies to produce annual financial statements and annual reports and submit them to the National Assembly.

However, the situation has begun to improve somewhat during the recent months, following the Ministry of Finance’s involvement in the preparation of financial statements on behalf of some statutory bodies. Despite these efforts, a backlog of accounts remains and more needs to be done to ensure that all statutory bodies are held accountable for the resources they use and the activities they are mandated to undertake. The delay in the production of appropriate financial statements and having them audited timely also impact on the Ministry of Finance ability to prepare the Government’s financial statements fully in accordance with IPSAS framework consolidating the extra budgetary funds and activities of the relevant statutory bodies. 

In general, the results of financial compliance audits of ministries, departments, offices and agencies (MDAs) are more or less similar and recurring. These are mainly the issues of non-compliance with prescribed financial procedures and instructions. There are recurring issues with regards to the breach of Procurement Act and regulations in the procurement of goods and services in public bodies. In some instances, the essential accounting records and documents, were either not kept or not updated timely, particularly, in the areas of stores, transport and fixed assets. This has impacted on effective management of the day to day operations of many public bodies. With regards to the recurrent expenditure, the government overspent some SR137.6m over and above the appropriations.

The government spends around SR12m every year for the supply of midday meals to several thousand students in public schools on Mahe, Praslin and La Digue. The price of a meal has remained at SR2 per student and SR5 per teacher since the 1990s until today. Despite the low price and the balanced meal portions, the consumption remains very low among the secondary school students. At the same time, the food wastage has reached alarming levels. In this report, the matters arising are discussed and some recommendations made for improvements.

In Appendix to my report is the IPSAS financial statements of the Government for the year ended 31 December 2016 together with my opinion on the same for ease of reference.  The several statements of accounts, referred to in my opinion, however, include the other statements required by law, such as, the public debt statement and outstanding guarantees and the detailed accounts forming part of the Consolidated Fund, which is produced and published by the Ministry of Finance. Readers are advised to refer to the complete set of these statements of accounts to gain a comprehensive understanding of the government financial operations and transactions. 

Gamini Herath
Auditor General