Transmittal Letter December, 2013 Honourable Chernor Bah Deputy Speaker of Parliament Sierra Leone House of Parliament Tower Hill Freetown Sierra Leone Dear Sir SUBMISSION OF AUDITOR GENERAL’S ANNUAL REPORT In accordance with Section 119 (4) of the 1991 Constitution of Sierra Leone, I have the pleasure and honour to submit my report on the Accounts of Sierra Leone for the financial year ended 31st December, 2012. Yours faithfully Lara Taylor-Pearce (Mrs.) FCCA FCASL Auditor General of Sierra Leone 1 Table of Contents List of Acronyms 3 1. Foreword 4 2. Executive Summary 5 3. Introduction 14 4. Auditor General’s Opinion on the Public Accounts 17 5. NASSIT: A Review of its Operations 54 6. A Review of Internal Audit in MDAs 95 7. Performance Audits 111 8. Ministries, Departments and Agencies 121 9. Public Enterprises, Commissions and Donor Funded Projects 209 10. City, Municipal and District Councils 282 11. Local Chiefdoms 289 12. Schools 295 Appendices 302 2 LIST OF ACCRONYMS ACC Anti-Corruption Commission AGD Accountant General’s Department ASSL Audit Service Sierra Leone ATM Automated Teller Machine CRF Consolidated Revenue Fund DMO District Medical Office GM General Manager GST Goods and Services Tax MDAs Ministries, Department and Agencies MEST Ministry of Education, Science and Technology MoFED Ministry of Finance and Economic Development NASSIT National Social Security and Insurance Trust NPPA National Public Procurement Authority NRA National Revenue Authority PAYE Pay as You Earn PHU’s Peripheral Health Unit PS Permanent Secretary PV Payment Voucher RFQs Request for Quotation SIV Store Issue Voucher SLCB Sierra Leone Commercial Bank SLP Sierra Leone Police SLPA Sierra Leone Ports Authority 3 FOREWORD In this Annual Report I present the results of our work for the past year. We have conducted the financial audit of the Public Accounts, compliance audits of Ministries, Departments and Agencies as well as schools and vocational institutions. I also report on the audits of Public Enterprises and Commissions. This year we did performance audits on the Rehabilitation of Prisoners, Allocation of Lands, the Rehabilitation and Maintenance of Feeder Roads and Waiting Time on the Processing of Retirement Benefits. These are summarised in this report. The reports also include a summary chapter on audits of local councils, local chiefdoms, and on schools with a particular emphasis on the Girl Child Program. In short, I report on all our audit activities so as to provide a comprehensive picture of the work of my office. Audits are conducted in compliance with professional auditing and ethical standards generally recognized around the world. In each of the past two years I commented that we had a long way to go in improving the quality of public financial management in Sierra Leone. We are getting better but at a very slow pace and advancing public financial management continues to require urgent attention by the government and public officials. I think of my report as having overarching themes. This year there is a focus on cash management and the need to dramatically improve internal auditing. Within the Ministry of Finance and Economic Development, more specifically the Accountant General’s Department, there is a need to address the nature of the modified cash basis of accounting as well as both the quality and accuracy of accounting. The very definition of what constitutes the government accounting entity remains to be considered, as at present all government bank accounts are not included in the Financial Statements of the Government of Sierra Leone. The most basic elements of internal control including record-keeping, protection of assets and segregation of duties need fixing in many MDAs. Losses from a failure to abide by procurement laws and regulations are eroding public trust in government. There is still a lack of awareness that as public servants we all are accountable to Parliament and the citizens for managing public funds with due regard and probity. The management of the national pension trust, NASSIT, is of particular concern to me and this is reflected by its inclusion in a separate chapter in my report. The findings on governance, control and asset valuation in that agency should be a major concern for parliamentarians and all citizens. I commend this report to all. In the course of the past year my staff and I have received considerable cooperation and assistance from the organisations and entities we audited. I would like to take this opportunity to express my thanks and appreciation to them all. Lara Taylor-Pearce (Mrs.) FCCA FCASL 4 EXECUTIVE SUMMARY About this Executive Summary This executive summary draws on the main points of each chapter in this annual report. Where necessary, further explanations are added so that on the whole, the summary is a standalone chapter that accurately reflects the overall content. It is laid out in the same sequence as the chapters in the document. Readers seeking more detailed information need only go to the individual chapters. The Role of ASSL We are the guardians of the public purse and Sierra Leone’s economic security. Acting in a professional, ethical and transparent manner, we audit and report on the stewardship provided by the government over moneys received - whether from taxpayers, donors or others - and related expenditures from these funds. Through independent professional audit, we establish to a reasonable level of assurance that public moneys are used by the government in the manner intended by Parliament. We assess how and whether these funds are being clearly and accurately reported by government and how they are used in terms of economy, efficiency and effectiveness. We report to Parliament in the first instance but also to the citizenry of Sierra Leone and other stakeholders. The Public Accounts The most significant outcome of my audit work for 2012 has been the issuance of an Adverse Opinion on the Financial Statements of the Government of Sierra Leone. It is my professional judgment that this was appropriate in the circumstances. The financial A few words on the types of audit opinion options available to me statements do not and the differences between them, may be helpful to the non- give a true and fair technical reader. The Auditor’s Report is an expression of the view … put simply, auditor’s professional judgment and its prescribed form is dictated the financial by international standards and good practice recognized around statements are the world by public and private sector audit practitioners. I may issue an unqualified or modified opinion on the accounts. An misleading. unqualified opinion – the most desirable - arises where the financial statements provide a true and fair view of financial position and performance. Modified opinions are classified as either an adverse opinion or a disclaimer of opinion. An adverse opinion is issued where the auditor has sufficient and appropriate audit evidence to support the assessment that the financial statements do not present a true and fair view. A disclaimer of opinion – the least desired - is considered more serious than an adverse and arises where the auditor does not have sufficient and appropriate audit evidence to form an opinion, one way or the other. In either case, for a modified opinion the audit evidence must be material (i.e. significant) and pervasive (i.e. throughout the financial statements). Last year (2011) I issued a disclaimer of opinion. This year, I have issued an adverse opinion. This is 5 very serious indeed. It does signify that the quality of audit evidence available to me was sufficient, unlike in 2011, to at least form an opinion albeit an adverse one. There continues to be matters of the gravest concern that adversely impact the quality of the financial statements. Put simply, the financial statements are misleading. The reasons for this year’s adverse opinion are found in the clear evidence of material and pervasively erroneous amounts and inaccurate assertions throughout the financial statements as a whole. These are laid out in my Auditor’s Report in Chapter 4 but may be summarised briefly as follows: . Note (2) to the accounts asserts that they have been prepared using the IPSAS Accrual Accounting Standard, an international standard, as far as practicable, and that they also comply with International Financial Reporting Standards. However, a review shows clearly that the accounts do not comply with IPSAS and further, there is no basis in the standard for partial compliance. So the assertion, as far as practicable, is not an option. It is all or nothing. External Public Debt disclosed in the financial statements was materially understated by Le93.4 billion. In addition, recorded foreign exchange gains and losses in respect of External Public Debt are incorrect. However, in this case I was unable to estimate a potential amount of the misstatement because of insufficient information presented for audit inspection. Treasury Transit Accounts were used by the National Revenue Authority to collect money on behalf of Government. Moneys from these accounts should have been transferred to the Consolidated Fund at close of business on 31st December, 2012. However, this was not done. Consequently, Government Domestic Revenue for the year ended 31st December, 2012 as presented in the Public Accounts, did not include all moneys collected and was, therefore understated in an estimated amount of Le8.7 billion. Government Bank Balances disclosed in the Public Accounts were not free from material misstatement. Some amounts were included in error. I estimate the net effect of the over and under amounts to be Le18.6 billion. Issuing an Adverse Opinion is a very serious matter for the country which should not be taken lightly, especially in view of my disclaimer given in 2011. Unfortunately, based on the facts revealed by the Public Accounts audit and, indirectly on the results of the many other audits undertaken by my office throughout 2012, that was unavoidable.