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Political will needed to further empower COPE: Charitha Herath

12 Mar 2022

  • Systemic arrangements for mismanagement and fraud at SOEs
  • Compliance audits alone insufficient, performance audits important
  • Politicians and successive governments must stay out of SOEs
  • There are some success stories, but many issues remain
By Marianne David The common observations across the State-Owned Enterprises (SOEs) featured in the latest Committee on Public Enterprises (COPE) report, tabled in Parliament on Tuesday (8), are mismanagement, politicised decision making, and a complete lack of commitment to decisions which are made, along with systemic arrangements for mismanagement and fraud, asserts COPE Chairman Dr. Charitha Herath. “We are currently looking at compliance audits, whether institutions or the management have broken laws. What I think is important is performance audits – how they took decisions. Some of these wrong decisions cost millions,” he pointed out. In the course of a wide-ranging interview with The Sunday Morning hours after the report was tabled, Dr. Herath spoke about COPE’s purpose, recommendations, and expectations. Following are excerpts of the interview: Now that you’re back, reappointed as COPE Chairman, how will you progress from where you stopped? At the first meeting, we discussed whether we would take up the previous examinations and take them forward. The committee approved my proposal and we have endorsed two reports which were already finished at the previous session. Now we are submitting those reports to Parliament. The first was tabled in Parliament on 8 March, featuring 12 institutions (see box). What are the key recommendations in the report? There are various recommendations. With regard to Independent Television Network (ITN), for example, there were lots of irregularities and financial mismanagement issues. We have recommended that a special committee be appointed to look into this. In 2015, ITN made profits of Rs. 450 million and by 2019, it recorded a loss of Rs. 2,500 million. This is a huge loss. There was a lot of mismanagement and many lapses. We have recommended a special inquiry. With these SOEs, have you quantified the overall losses? What are the common observations across the institutions? No, we don’t quantify the overall losses. In terms of common observations, the first is mismanagement, second is politicised decision making, and third is a complete lack of commitment to decisions which are made. Another very important issue is systemic arrangements for mismanagement and fraud. For example, there is an inquiry on Sri Lanka Cricket. That is a systemic issue where you can’t sometimes get it out in a very simple engagement. You have to start from many different levels. What purpose will this report serve? There have been so many reports by COPE, but what has been actually done? You have to understand the rationale behind this oversight committee. The people are the owners of public finance and members of Parliament are their representatives. Since the final authority of public finance lies with the people and they can’t come and decide these things, they have sent their representatives to Parliament, who have the authority to oversee how public finance is used. We have proposed three different initiations to get out of this mess. One is, we have recommended and instructed the chief accounting officer, who is the secretary of the ministry under which the institution in question is gazetted, to take some action in order to fix the issues within the administration and even to take some legal steps. Secondly, we discuss these things in front of the people and we deal with the media; this is one part of the whole process. If some decisions are wrong, the government in question will have to make sacrifices. It happened in 2015 – the Central Bank bond issue was discussed by COPE and the legal formalities are still underway, but that Government had to sacrifice power. Thirdly, we report back to Parliament, which I have done. After we table a report in Parliament, the Parliament Business Committee can take a decision on the report. It can take a couple of different decisions. The Government side could take some of the recommendations and change the legal framework or acts of the institutions. Ministers could look at their own institutions and go ahead with some recommendations. Then Parliament as a whole – the Government and the Opposition – could take up some of these matters and have special debates. These three things – directly instructing the chief operating officer on taking some measures, giving this information to the public and the media, and taking the whole thing back to the main parliamentary chamber – are the three levels of implementation. But do you believe that any action will be taken? Yes. For example, before I came into this political platform, I was a secretary of a ministry. At that time I was summoned by the D.E.W. Gunasekara Committee and he instructed me to sack a chairman under my ministry. I was able to convince the minister, we asked that gentleman to resign, and we reported back to the committee. Such things are happening right now as well. For example, for this report, we summoned Sri Lanka Insurance. It has some other investments under its name in some other companies; Litro is one of them. At that time the Litro management was trying to get away from Government auditing and did not even come to Parliament. We had a heavy struggle. In fact Litro went to Court and spent some Rs. 20 million in an effort to convince that it is not part of the Government. Finally what happened was that we discussed this issue in front of the people and in Parliament and the Government took a decision to change the Litro management. The new Litro management has decided that it will give up this legal battle and come back to COPE. It is now under COPE supervision, but we are still battling some issues relating to Litro. Suppose if Litro had no observation or auditing and there was no oversight happening, it would have gone into a very bad shape. But I think we have won that battle and COPE was able to convince Parliament to make some decisions. With this report, what changes do you expect in the structure of public organisations? Do you believe that there will be change? Yes. There are a couple of things. One thing is that we are currently looking at compliance audits – we are looking at whether the institutions or the management have broken laws. What I think is important is performance audits – how they took decisions, whether they have done some feasibility studies before taking important decisions at Board level. Some of these decisions cost millions and at the end of the day, the decisions were wrong. They were not taken with careful thinking or prior understanding. Have you proposed that this should be done? Yes, it was proposed for different institutions in our recommendations. One is that they have to rectify the decisions. Two is that if they are going to take a similar decision, they have to follow this method. COPE makes recommendations, but has any government implemented these recommendations? Yes, there have been many implementations. If they don’t implement these, they will fall back. For example, with Sri Lanka Insurance, we have not only recommended, but we have also reviewed and called them back, and completely relooked at what has happened in relation to the COPE recommendations. There are hundreds of loss-making SOEs; what are the success stories thanks to COPE oversight? Has there been any turnaround? There have been many, even before me. Taking Sri Lanka Insurance and Waters Edge back was based on COPE reports. Rectifications of the bond scam issue were based on COPE reports. In my previous report, we made recommendations on the Sri Lanka Institute of Information Technology (SLIIT) issue. SLIIT was created and initiated by the Government spending Rs. 500 million and using 25 acres of State land in Malabe, which was taken away systematically. We recommended that the Government should relook at the issue and now it has taken a Cabinet decision to appoint a special committee to completely relook at this and take it back. There were some success stories, but in between there were a lot of issues, as you mentioned, which were not taken into consideration up to the level that we expected. Successive COPE chairs have called for more teeth for COPE, but no government has addressed this. What has been done? Do you believe there is political will to do something about it? Political will is needed. At the moment some senior people in the Government are of the opinion that COPE needs to have some more powers. To do that you have to change the Standing Orders of Parliament. It is not a very difficult thing; there is a special committee to relook at the Standing Orders. So why isn’t it being done? We are going to submit a special request to the Sub Committee on Standing Orders to relook at he powers that were given to COPE. Is there a timeframe for when you will be submitting this request? We have started to discuss the matter and we are going to develop our proposals and submit them. Do you have a legal framework that you want implemented for COPE, have you proposed anything to that effect? No, we don’t think that we need legal or judicial powers; we should have some powers to directly take some decisions on COPE recommendations. To do that you need to have a system to continuously evaluate decisions and their execution. We also need to put more weight on performance audits. Compliance audits are important, where you can see whether certain institutions have already broken the law, but at the same time you need to look at how and on what basis some decisions were made – whether they have used some feasibility studies, supportive studies, and knowledge when making decisions. Some decisions have cost huge amounts of money. Later the people who took those decisions have been thrown out and new people brought in, but that loss is still there. We need to have some legal support to get them back in the issue and hold them answerable. We can still call previous chairpersons and administration personnel, but sometimes putting legal pressure on them does not materialise in a productive way. Apart from more powers, what does COPE need? Are you adequately staffed and funded? Do you have everything you need to carry out your investigations? Yes, we do have facilities and support. There are also a lot of international support arms and there’s an International Partners Committee as well, where some international institutions and some embassies are working with the parliamentary setup. They are ready to support us. So if that support is there and if your reports are comprehensive and you are able to do your work in line with the mandate given to COPE, why isn’t more change happening in terms of SOEs turning around? Where is the problem? Actually that is part of the problem of this political system. Regardless of the party in power, although these are State entities, they are governed by successive governments. Sometimes the political will of the government and the people they select do not match the expectations and sometimes there is systemic engagement to misuse the properties and so on. There are a lot of reasons. I don’t know whether we have answers to questions like whether governments can do business. Even if governments could, what are the areas that a government should be involved in and what are the areas it should be not involved in? That is another thing. Even if a government is in any business, what are the aims and objectives of that business – to provide services or make profits? Those are also important issues. I think we need to have an institution like Temasek in Singapore. In Sri Lanka, we had a similar institution – the Strategic Enterprise Management Agency (SEMA). It was started under President Chandrika Kumaratunge and it lasted until Maithripala Sirisena’s presidency and was then closed. It could not successfully deliver as each president tried to make use of it. In my opinion, we in Sri Lanka should have three intervention strategies to reform State entities. Firstly, we have to categorise which enterprises and businesses a government should run and which it should not take up in this given context. Some of the businesses were started in the post-colonial time when the private sector was not in that business. For example, at that time we had Radio Ceylon, the government was the sole agent, but now we have around 10 private entities. Now we have to look at whether we need the same kind of enterprise under the State. Secondly, there should be a special plan for government enterprises which are with the government for societal benefits and which are there for social benefit plus profit making. Thirdly, I think you have to group institutions which are non-performing, nonessential, and have less impact on society and then take a decision. They have employees and we can’t just let them go; we need a plan. For enterprises which are needed but the government cannot manage, Public-Private Partnerships can be done – Sri Lanka Telecom is a very good example. We have four State entities which account for 90% of the losses of the Government – SriLankan Airlines, Ceylon Petroleum Corporation (CPC), Ceylon Electricity Board (CEB), and Cooperative Wholesale Establishment (CWE). All these institutions are completely lossmaking at the moment and putting a heavy burden on taxpayers’ money. Do you believe that if politicians and successive governments stay out of SOEs, it would be possible to have longer-term plans that don’t change with every government? Yes. One thing is the SEMA type of institution. The other is whether we could get some of these SOEs linked to special trustees rather than to ministries. This is a debatable idea and I am not putting it before the Government – I am just throwing it into discussion. The specific audit reports subjected to special investigation by COPE and the institutions subjected to examination
  Organisation Date of investigation Matter investigated
1 i. Ministry of Media ii. Independent Television Network Ltd. 06.01.2021 Report of the Auditor General for the years 2017 and 2018 and present performance
2 i. Ministry of Energy ii. Ceylon Petroleum Corporation 19.01.2021 Special audit report on storing and distribution of petroleum in Sri Lanka
3 i. Ministry of Plantation ii. State Ministry of Coconut, Kithul and Palmyrah Cultivation Promotion and Related Industrial Product Manufacturing and Export Diversification iii. Coconut Development Board 21.01.2021   Report of the Auditor General and present performance of the Coconut Development Board
4 i. State Ministry of Foreign Employment Promotion and Market Diversification ii. State Ministry of Skills Development, Vocational Education, Research and Innovation iii. Sri Lanka Bureau of Foreign Employment iv. Tertiary and Vocational Education Commission of Sri Lanka v. Sri Lanka Foreign Employment (Private) Company 22.01.2021   Special audit report for studying the present status in the field of foreign employment
5 i. Ministry of Education ii. State Ministry of Women and Child Development, Pre-Schools and Primary Education, School Infrastructure and Education Services iii. National Child Protection Authority 12.02.2021   Special audit report on the role of the National Child Protection Authority regarding child abuse in Sri Lanka
6 i. Ministry of Finance ii. Sri Lanka Insurance Corporation Ltd.   23.02.2021 Statutory audits by the Auditor General and report of the Auditor General on financial years 2017 and 2018 and present performance pertaining to Litro Gas Lanka Ltd. and Litro Gas Terminal Lanka Ltd.
7 i. State Ministry of National Security, Home Affairs and Disaster Management ii. National Building Research Organisation (NBRO) 24.02.2021 Audit report on the performance of the project to relocate the families living in high land-slide risk areas in the Kandy District
8 i. Ministry of Environment ii. Ministry of Finance iii. Ministry of Trade iv. Ministry of Urban Development and Housing v. State Ministry of Urban Development, Coast Conservation, Waste Disposal and Community Cleanliness vi. State Ministry of Cooperative Services, Marketing Development and Consumer Protection vii. Department of Coast Conservation and Coastal Resources Management viii. Central Environmental Authority ix. Consumer Protection Authority x. Sri Lanka Customs 09.03.2021   Environmental audit report on import, use and post-use management of plastic in Sri Lanka
9 i. Ministry of Industry ii. Ministry of Environment iii. Lanka Mineral Sands Ltd. iv. Geological Survey and Mines Bureau 23.03.2021 Audit report on the performance of Lanka Mineral Sands Ltd.
10 i. Ministry of Education ii. University Grants Commission iii. University of Peradeniya iv. Postgraduate Institute of Science 26.03.2021 Report of the Auditor General on the Postgraduate Institute of Science affiliated to the University of Peradeniya for the years 2018 and 2019 and its present performance
11 i. Ministry of Youth and Sports ii. Department of Sport Development iii. Sri Lanka Cricket 11.02.2021; 06.04.2021 Report of the Auditor General on Sri Lanka Cricket for the years 2017 and 2018 and its present performance
12 i. Ministry of Agriculture ii. State Ministry of Livestock, Farm Promotion and Dairy and Egg Related Industries iii. National Livestock Development Board 07.04.2021 Report of the Auditor General on the National Livestock Development Board for the years 2016 and 2017 and its present performance
 


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