Tag: state-owned enterprises

Government owed over MVR250 million in unpaid dividends, audit reveals

The government is owed MVR256.9 million (US$16.6 million) in unpaid dividends from state-owned enterprises, the audit report of the Ministry of Finance and Treasury for 2012 has revealed.

In the report (Dhivehi) made public yesterday, Auditor General Niyaz Ibrahim recommended collecting the dividends within a period of one month.

The unpaid dividends include MVR5.1 million (US$330,739) owed by Island Aviation Services, MVR78.9 million (US$5.1 million) owed by the Malé Water and Sewerage Company, MVR167.8 million (US$10.8 million) owed by the State Trading Organisation (STO), and MVR5 million (US$324,24) owed by the Maldives Transport and Contracting Company (MTCC).

The auditor general also recommended regularly monitoring the finances of government-owned companies, seeking audited financial statements within six months of the end of the financial year, and collecting dividends without delay.

While the ministry was required to submit a consolidated financial statement for 2012 inclusive of the departments operating under its remit, the report noted that the ministry prepared separate statements for itself and the departments.

Moreover, the annual financial statements did not include details of loans and foreign aid, the report stated.

As the auditor general was therefore unable to offer his professional opinion on the financial statements for 2012, he recommended taking action against the responsible financial officer under articles 47 and 48 of the Public Finance Act for the lapse.

Highlighted cases

Among other issues flagged in the report, auditors found that the Finance Ministry spent MVR858.5 million (US$55.6 million) out of the budget code assigned for providing capital to government-owned corporations.

The funds were released in violation of the constitution, the Public Finance Act, and regulations under the law, the report stated.

Article 96(c) of the constitution states, “No supplementary expenditures shall be added to an approved budget without further approval by the People’s Majlis. Expenditures included in the budget shall be applied solely for the specified purpose.”

The funds earmarked for capital expenditures of government-owned corporations in the 2012 state budget was MVR30.4 million (US$1.9 million), the report noted.

Of the funds released as capital for government-owned companies, auditors discovered that MVR840.6 million (US$54.5 million) was used to pay salaries for board members and staff and to cover other recurrent expenditures.

The ministry’s actions defeated the purpose of allocating funds for specified expenditures in the budget, the report stated.

As state-owned enterprises were not required to comply with public finance regulations, the report warned that releasing the funds could be “wasteful” or “facilitate corruption” in the absence of a mechanism for holding senior officials of the companies accountable for expenses.

Moreover, falsely including such a large amount of money as capital expenditures in the annual financial statement was “a serious deception,” which casts doubt on validity of the statement, the report noted.

The auditor general recommended taking legal action against the officials responsible for authorising the release of funds to the state-owned enterprises, which included health corporations, utility companies, regional airport companies, the Bank of Maldives, the State Electricity Company, STO, MTCC, Aasandha, and Fuel Supply Maldives.

The auditor general also cautioned against corporatisation of government services without assessing feasibility and determining financial and administrative challenges.

Abuse of authority

In another case highlighted in the report, auditors were unable to verify whether MVR254,898 (US$16,530) worth of expenses for overseas trips by senior officials were made for state purposes.

The Finance Ministry refused to share documents related to the trips “despite repeated requests,” the report stated.

The auditor general recommended that the expenses should be further investigated by the Anti-Corruption Commission.

Auditors also discovered that the Finance Ministry purchased a number of items without a bidding process in violation of public finance regulations, which requires a public tender for procurement of items worth MVR25,000 (US$1,621) or higher.

The items included a Macbook Air, two coffee machines, an air-conditioner, eight computer systems, and one iPad.

Meanwhile, in November 2012, a senior project officer at the Ministry of Home Affairs was hired as a consultant for the Finance Ministry to formulate projects for a period of two months.

While an announcement seeking a consultant was made on November 18 and an employment contract was signed on November 21, auditors found that the consultant began working at the ministry on November 12.

Auditors could not find any documents showing that the consultant worked on the projects during the contract period.

Moreover, in December 2012, Finance Minister Abdulla Jihad asked the ministry’s human resource committee to create a post for a project designer at the minister’s bureau.

The Civil Service Commission (CSC) was requested to create the post on December 24 despite misgivings of members on the human resource committee, the report stated.

When the job announcement for the ‘director project designing’ was made on December 27, the report noted that only one person applied for the post.

The interested candidate was the same individual previously hired as a consultant, the report revealed.

The unnamed individual was appointed to the post on January 28.

The auditor general recommended that the case should be investigated by the ACC as the hiring of the consultant constituted abuse of authority to benefit a third party.

Finance Minister Jihad – who was appointed to the post in February 2012 following the controversial transfer of presidential power – has meanwhile denied the allegations in local media.

Jihad told newspaper Haveeru that the project director post in question was a civil service job, over which he did not have hiring or firing powers.

“It is done in accordance with the rules by the relevant officials at the ministry. I don’t get involved in such matters. The auditor general releasing such a report is very irresponsible,” he was quoted as saying.

Jihad has also previously criticised the auditor general over a report released in December which concluded that an MVR300 million loan was secured in 2012 from the Bank of Maldives in violation of public finance laws.

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“Poor financial record keeping” poses challenges to audit state enterprises: AG

The Auditor General Niyaz Ibrahim has expressed concern over poor record keeping at State Owned Enterprises (SOEs), and said the public is entitled to know how much the state makes from an enterprise it owns or if the enterprise is making a profit or loss.

Speaking to Minivan News today, Niyaz said the independent audit office faces severe challenges in auditing SOEs, especially those in which the state is a minority share holder.

In some cases, even when a company is liquidated, there are no financial statements or audits, he said.

“As you know, there are over 80 companies in which the government owns shares, including minority share holding enterprises. While we don’t have adequate legal authority to appoint external auditors to the companies in which the state is a minority share-holder, the Audit Act allows us to do so with majority State-owned enterprises,” Niyaz explained.

It was the norm of the board of directors to appoint an external auditor, inhibiting the auditor’s work as they are bound to follow instructions from and report to the company’s board. However. starting in 2011 the Auditor General’s Office (AGO) has begun appointing external auditors to SOEs, thereby giving auditors more protection and independence.

The AGO will have auditors at all SOE’s except for Island Aviation for the 2013 accounts, Niyaz said.

Annual audits

The Company Act mandates audits be conducted annually, however there is no way to see how many SOEs are faring as they do not even produce financial statements, Niyaz said.

“Many of the companies which have been formed recently are in this very poor state of financial record keeping,” he continued. Even while some of these companies are now to be liquidated, there is no record of financial statements, nor has there been any audits. This is state resources we are speaking of. The people have a right to know what is being done with this money. Usually, public listed companies get more attention as they sell shares to people. How we see it, though, is that every citizen has ownership of state enterprises, and thereby public interest is much higher in such companies,” he said.

SOE’s must be far more transparent and accountable than listed companies, Niyaz stressed

The AGO has now commenced work on preparing a report documenting the status of all SOEs, he added.

“The public is entitled to get the basic information as to how much the state makes from an enterprise it owns, whether the enterprise is making profit or loss, whether it is accountable and transparent.”

Unexplained share-holding

Niyaz said there were many unexplained cases where the state owned minority shares, especially in the tourism industry.

“There is room to suspect that the legal provision within tourism laws of special provisions in the assignment of islands for tourism sector if the state owns some shares of the company or island is being abused,” Niyaz alleged.

Challenges in auditing state enterprises

Niyaz said that the Auditor General’s office has a practice of submitting a detailed work plan of all programs planned for the upcoming year with their budget proposal, and that the special audit of state-owned enterprises has not been included in the submitted proposal.

He said that his office will need to find means to fund the process in other ways, as plans for this were made after the budget proposal had already been submitted in late October.

Niyaz further noted the lack of cooperation extended to external auditors from the management and board of some state owned companies.

“Jobs for politicians”

The management of SOEs need to be strengthened, especially that of the board of directors, Niyaz said. SOEs must not be formed to create jobs for politicians, Niyaz said.

“As evident, if the top management of a company, enterprise or even an institution keeps being changed every now and then, it proves to be a strategical loss to that entity. Each of these management will have plans for its development, but if this keeps changing frequently, there will be no stability there. Therefore, there really needs to be a change in how the state runs the enterprises it holds shares in or owns,” he continued.

The state must end the appointment of individuals to management level jobs at SOEs on the basis of their political affiliation, Niyaz said.

“Even the board must consist of financially literate people who understand what it means to run a business, if the company’s governance is to be improved. I will give you an example of the level some current board members have, and this doesn’t change no matter which government is in place. A team from my office met with a company’s board members recently, after multiple attempts to meet them previously. For purposes of auditing, they asked the board for the financial statement. Members of the board then said at my staff members, ‘who do you think you are to come here and question us? We don’t have to give you any financial statements’ and then threatened to throw them out of a window. This is the calibre of some appointees to the boards of state enterprises. It is way beyond their authority to speak in that manner to a team of auditors who are their to fulfill legally stipulated duties,” Niyaz said.

Parliament initiative to run audits

Parliament’s Public Accounts Committee Chair Abdulla Jabir told Minivan News today that the committee has rescheduled the initial debate on the matter from Sunday to Tuesday, for which both the Auditor General and Attorney General Mohamed Anil will be summoned.

According to Jabir, the objectives of conducting a special audit are to have all state companies operating under a single holding company and to find a way to liquidate companies that fail to make profit.

Attorney General Mohamed Anil was not responding to calls at the time of press.

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Bill mandating parliamentary approval for Managing Directors rejected

Parliament today rejected an amendment to the Companies Act proposed by Republican Party MP Ibrahim Muttalib stipulating that the President must seek parliamentary approval before appointing Managing Directors for public companies and state-owned enterprises.

Of the 68 MPs in attendance, only 16 MPs voted in favour of the amendment while 49 voted against and three abstained.

The amendment was severely criticised by MPs of the ruling Maldivian Democratic Party (MDP) as the latest in a series of bills intended to wrest control from the executive and undermine presidential prerogatives.

Several opposition MPs also argued that the amendment would threaten the independence of public companies, claiming that a single amendment was not enough to overcome the shortcomings of the existing Companies Act.

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