• Governments have failed to account for over Rs. 5.5 t between 2006 and 2021

In an astonishing revelation, the National Audit Office (NAO) has exposed previous governments’ failures to account for over Rs. 5.5 trillion, equivalent to a staggering 68% of total government investments amounting to over Rs. 8.1 trillion between 2006 and 2021.

The NAO’s 2021 Annual Report discloses that Non-Financial Assets (NFAs) amounting to Rs. 1,850,007.34 million were reported as of 31 December 2021. However, a significant disparity has emerged in the Government’s financial reporting.

Despite cash flow statements indicating total Government investments of Rs. 8,199 billion for the acquisition and construction of physical assets and other investments from 2006 to 2021, the statement of financial position for 2021 only recognises Rs. 1,850 billion as NFAs.

The report further reveals that financial assets totalling Rs. 934 billion have been acknowledged, including an on-lending component of Rs. 173 billion and capital contributions to State enterprises. Consequently, the total accounted for financial and Non-Financial Assets by the end of the review year amounted to Rs. 2,784 billion.

A historical lapse

It was uncovered by the NAO that of the Rs. 8,199,316 million in Government investments made from 2006 to 2021, only Rs. 2,663,594 million had been formally recognised as assets in the statement of financial position for 2021. This alarming oversight has resulted in the failure to acknowledge and account for assets valued at Rs. 5,535,721 million, representing a staggering 68% of the total investments made during the specified period.

The report has also highlighted a historical lapse, noting that the value of NFAs has been omitted from financial statements between 2005 and 2014. It wasn’t until 2015 that these values were finally incorporated into the accounts, raising concerns about transparency and financial reporting practices during that period.

Nevertheless, the Annual Report of 2021 has reiterated that out of the sums totalling Rs. 8,199 billion stated in the Government cash flow statements as construction or purchase of physical assets and acquisition of other investments since 2015, assets worth Rs. 5,530 billion or 67% have not been identified and brought to account.

NFA categorisation 

The International Monetary Fund (IMF) defines Non-Financial Assets as economic assets excluding financial assets. These assets do not represent claims on other units but serve as stores of value, providing benefits through their use in the production of goods and services or in the form of property income.

NFAs are typically categorised into produced and non-produced assets. Produced assets encompass fixed assets, including buildings and structures (such as State-owned dwellings, roads, and infrastructure), machinery and equipment, computer software, and research and development. Additionally, produced assets cover inventories and valuables, such as works of art, precious metals, and stones. 

On the other hand, non-produced assets are further classified into tangible and intangible categories. Tangible non-produced assets include land and subsoil resources, while intangible assets encompass leases and licences. This classification provides a comprehensive understanding of the diverse nature of non-financial assets, reflecting their various roles in economic activities and value creation.

Comptroller General’s Office

In such a backdrop, in 2017, the then Government established the Comptroller General’s Office at the Finance Ministry to monitor the management of the assets and expenditure of the Government. The main function of the unit was to maintain a list of central assets prepared covering all NFAs of the Government.

The Comptroller General’s Office was established as per the Budget proposal approved by Parliament in 2017 with the objective of overseeing the management of assets of the Government and the cost management of assets through the centralised recording of all assets of the Government.

However, the NAO has exposed significant shortcomings in the Comptroller General’s Office, as outlined in the 2022 audit report. From 2017 to 2022, the office was able to create only a database on motor vehicles owned by State institutions due to the failure of State entities to submit the necessary data on other assets.

The report emphasised that despite a five-year window since its establishment, the Comptroller General’s Office had failed to perform a centralised recording of all local and foreign Government assets, spanning lands, buildings, motor vehicles, ships, aeroplanes, machinery, and more.

Highlighting the urgency of this matter, the NAO highlighted that centralised recording was identified as a priority activity for the Comptroller General’s Office. However, as of 31 December 2022, this critical task remained unfulfilled, raising concerns about transparency and accountability in the management of Government assets.

The Chief Accountant of the Comptroller General’s Office, responding to the audit, has cited a two-year period from 7 March 2017 to 31 December 2022 when no Government institution provided the required information in accordance with the Assets Management Circular No.1/2017. Consequently, the Comptroller General’s Office has to exert substantial effort to independently create a database on motor vehicles, buildings, and lands. The motor vehicle database was initiated in 2017 and subsequently updated in 2019 and 2021.

Adding to the concerns highlighted in the audit, it was disclosed that as of 31 December 2022, the Comptroller General’s Office faced nine vacancies, with five of them being at the senior level.

New online platform

Nevertheless, in a circular issued on 24 August 2023 (Assets Management Circular No.6/2023) the Comptroller General’s Office had informed that it had introduced an online Non-Financial Assets Management System (NFAMS) to create an online centralised comprehensive database for the Non-Financial Assets management of public sector institutions such as ministry secretaries, chief secretaries of Provincial Councils, heads of departments, chairman of the University Grants Commission (UGC) and vice chancellors of universities, heads of public corporations and statutory boards, and chairpersons of State Banks and State-owned companies.

As the first phase of the implementation of this system, the module on vehicles was to be implemented with effect from 1 September 2023, focusing on recording essential details of the vehicles in possession of the public sector institutions.

Ongoing process 

When contacted, Treasury Deputy Secretary R.M.P. Rathnayake explained that the Comptroller General’s Office was a recently established department within the Treasury, tasked with developing a centralised data system for non-financial assets.

“They are actively working on this initiative, with relevant legislation and procedures nearing completion and awaiting final approvals. The register has already been established and circulars have been issued to all agencies instructing them to record their non-financial assets in the database,” Rathnayake stated.

He noted that there were challenges, since these assets were currently recorded in the respective balance sheets of the agencies, making duplication through another reporting system impractical. The Department of State Accounts is addressing this by compiling all relevant details. However, valuation poses an issue as these assessments are not regularly updated, leading to a persistent mismatch.

Rathnayake pointed to an example, such as in the case of roads being recorded in the balance sheets of the Road Development Authority (RDA) and the Ministry of Highways. The ongoing process involves transferring these assets to the Central Government’s balance sheet by recording them there while removing them from their respective balance sheets. 

Attempts made to contact the Comptroller General’s Office were futile.