Bond issues: AG hits out at Finance Minister

Claims impatient and unethical reminders for reports on bonds from 2008 to 2016

CHINESE CIRCUS

The Auditor General has accused the Finance Minister of being impatient and unethical in seeking from him a report on the accounts of the Public Debt Department of the Central Bank on bond issues for eight years.

Though the request did not fall within his scope, Auditor General Gamini Wijesinghe has said he nevertheless furnished the report for the period 2008-2016.

Finance Minister Ravi Karunanayake was not available for comment yesterday. His return from Switzerland where he took part in the World Economic Forum in Davos is being awaited.

In mid-August last year, the Finance Minister requested the AG to examine the accounts of the Central Bank and report back under the provisions of the Monetary Law Act. The AG handed over the Report containing his findings this week.

However, in his report, the AG has said an in- depth examination of the bond issuance process, which began in 1997 had to be carried out to furnish replies to the ten questions relating to 2,136 instances of issuance of bonds from 2008 to 2016. But this could not be done with the Department's work hampered by the “impatience and the unethical reminders of the Minister of Finance,” he has said.

In the preparation of the report, the AG said, he deviated from the methodology of presenting of the audit reports to reply to the 10 questions referred to him by the Finance Minister.

The AG said the Central Bank had emphasised it had introduced internal control systems and decision-making processes to ensure that the fund raising by the Bank was done with transparency and prevent the occurrence of irregular activities. But he observed that these processes/systems were “insufficient and that action surpassing such controls had taken place.”

The AG also referred to the controversial bond auctions of February 27, 2015 and March 29, 2016. He states that they “had not been held in accordance with the requirement of safeguarding transparency” appearing in the Handbook on Developing Government Bond Markets issued by the International Monetary Fund and the World Bank in 2001. This guidebook is used by the CBSL.

The AG also noted that there were instances of unauthorised transfer of ownership of Government Securities without authority even though the CB Governor had informed him that unauthorised transfer of ownership had not been reported to the CB up to date.

Nevertheless, the AG noted that there was evidence of a complaint made by the Ceylon Electricity Board to the CB that the ownership of an investment in bonds made by the Provident Fund of the CEB through the Primary Dealer Entrust Securities PLC had not been recorded in its name in the CB.

“As such the adequacy of the existing Standard Information Technology controls to prevent the illegal transfer of ownership has become a questionable issue,” the AG said in his report.

In the overall analysis on direct placement of government securities in the past decade, the AG noted the necessity existed for CB authorities, its Public Debt Department and the General Treasury to “direct their attention with further intensity and execute their functions by the optimum utilisation of their specialist knowledge, experience and resources effectively, qualitatively and economically." This was necessary to minimise the cost to the Government and ensure the development of the Government Securities Market, he said.