ISIA: Drastic Reforms in Public Sector Financial Reporting Standards and Strengthening of Integrity Institutions is the way forward
The announcements and statements made by the Auditor General in his latest report released over the past week around issues of inappropriate and/or poorly documented payments being made by the Economic Stimulus Package Committee which was established through a Cabinet Resolution highlights several concerning and on-going breaches of the country’s legal requirements as per the Public Financial Management Act and related regulations. It also highlights a lack of proper financial reporting mechanism/framework that is aligned to the country’s legal requirements that guides the process of expending public funds to ensure that the ESP Funds are expended with high standards of accountability and transparency.
Notwithstanding that the statements may need further validation or investigation by appropriate bodies, the raised issues display a set of weakened or poor understanding and application of ‘sound financial management and internal control standards and practices’ by representatives of the public purse, Parliament and their public service entities.
For the past years ISIA, along with other integrity organizations, have been advocating for the introduction of new and more enhanced Solomon Islands laws and regulations around ‘public sector accounting standards’, based on well- established and widely adopted internationally-recognized accounting and auditing standards which also includes the need for on-going training or retraining of agents of the public sector system from its lowest level to senior management to even members of parliament themselves.
Some of the key components of any public sector accounting and auditing standards are open and clear transparency of financial allocation and distribution processes, sound and workable internal control protocols, including the trailing of transactions supported by documentation and approval processes, and appropriate education and skilling of agents that have the responsibility, whether individually or overall, of both the distribution of public funds and how its being recorded and reported.
ISIA is not saying that having these international public sector accounting and auditing standards would have eliminated what has been asserted by the Auditor General to have happened in the case of the Economic Stimulus Package funds, but it would have significantly reduced the instances or seriousness of the reported breaches, and likewise would have made it easier to track and narrow down areas or parties of ‘responsibility breaches’ and equally assist in ‘plugging the procedural gaps’ with newer and more targeted laws and regulations.
Where to from here?
Public funds are taxpayers’ monies which are paid to the government as agents of the Solomon Islands people for the purpose of service delivery to citizens in terms of quality health-care, education and infrastructure.
Increased oversight over public finances is critical going forward for the Solomon Islands economy to progress and for service-delivery to be effective compared to what is currently being delivered to citizens.
On this note, ISIA is strongly recommending the following actions to be taken by the Government:
Immediate Government Action to Further Investigate Audit Findings
The seriousness of these breaches calls for immediate government action to further investigate based on the findings of the Auditor General to hold those responsible for these breaches to account.
These investigations must be pursued with all the due process required, and with the assurance of the integrity and independence of the authorities concerned.
Any conflict of interest, or perceptions thereof, of those involved in these inquiries or investigations should be avoided.
A credible mechanism including relevant central agencies of the Government and watchdog institutions should provide the necessary support and impetus to appropriate authorities like RSIPF and Director of Public Prosecutions (DPP) to take these matters further to conclusive outcomes.
Effective deterrents and consequences are a necessary part of longer term structural and capacity improvements in public financial management in Government.
Call for Strengthening of Integrity Institutions
Mere existence alone of integrity institutions such the Office of the Auditor General (OAG), Solomon Islands Commission Against Corruption (SICAC), the Leadership Code Commission (LCC), the Office of the Ombudsman, and Transparency Solomon Islands (TSI) is not enough.
These organizations play an integral role in maintaining the integrity of government decisions on public spending, budget allocations, and tax revenue management. These are critical functions of the public sector financial management system. Therefore, effective oversight to ensure that taxpayer’s money are spent properly is critical to restore public confidence in the decisions of the government.
These institutions need to have sufficient capability and capacity to effectively deliver on their legal mandates as expected by the public. This practically means that the Government should ensure that these organisations are fully resourced (and truly independent). This is how the Government can practically show their commitment to the fight against corruption - by ensuring high standards of transparency and accountability over the systems and processes through which public resources are being managed and allocated.
For instance, the Auditor General Bill needs to be reviewed and passed by Parliament to give more power to the Auditor General over critical decisions such as its budget and recruitment of its personnel. The OAG plays a crucial role in maintaining the integrity of government decisions and spending and for them to be effective in this role, they need autonomy over key decisions mentioned above to ensure their independence from the government.
Auditor independence is the cornerstone of the auditing profession and therefore gives credibility to the work of statutory audit institutions such as the OAG. This needs to be recognized by the Government if they are serious about strengthening oversight over how public finances are being spent and managed.
Call for Change of Public Sector Financial Reporting Standards
Finally, sound public sector accounting standards and regulations over financial reporting and auditing needs to be changed from what is currently being practiced.
In light of the current findings of the ESP Audit Report, it is high time that the Government considers moving from the IPSAS Cash Basis Reporting to the more rigorous Accrual-based Reporting as provided for in the Solomon Islands Public Financial Management Act 2013 under Section 77.
This is very important because of the identified weaknesses and shortfalls in the Cash Basis Reporting systems which fails to report on non-cash transactions resulting in significant and relevant information on assets and liabilities to be left out of formal financial reports. This can result in incomplete information that is relevant to aid in effective decision-making at higher levels of the government structure.
Such a move will require raising standards of accounting and auditing capabilities in the public sector, which is something that ISIA is committed to. The process of training / skilling at all levels of the SI public sector to understand the importance of full and open adoption of these standards is critical to ensure that these are applied properly when these standards are adopted.
Through proper documented and reportable application of accounting standards in the public sector, a stronger and more transparent Solomon Islands society will become the norm, and the confidence and trust in the public sector (includes parliament) by its citizens will increase and strengthened, especially if an introduction of a VAT or significant tax reform takes place soon.