Corporate Affairs
Corruption, losses and public accountability
By Sunil Karunanayake
With newspapers and the public domain filled with scams in the Tax Department and other agencies of the government, our columnist today looks at the key issue of governance, transparency and whether the government is effectively tackling these key issues.

Governance is a reflection of the extent to which public officials can be held accountable to citizens and the transparency with which they carry out their functions. Increasing corruption and swindling of public funds has now become a feature of Third World countries struggling to overcome poverty and internal conflicts.

Not that the developed countries are devoid of corrupt officials but the strong institutional structures in these countries are able to act fast and apprehend the wrong doers and prosecute them with speed which itself acts as a deterrent.

Recent examples of corporate scandals in the West and the manner in which the law enforcement agencies acted are examples of good governance. Today corporate governance has brought a certain amount of boardroom discipline.

In Sri Lanka we are at the moment witnessing the unfolding of the great VAT robbery that has taken even the man in the street by surprise and now rated as one of the biggest scams in South East Asia, while media reports have also surfaced on visa scams.

These corrupt activities at “high places” have exposed the large-scale irregularities in an unbelievable manner Corruption has been defined by the World Bank as “using public office for private gains” while Transparency International, a non-governmental organisation based in Berlin dedicated to increasing government accountability and a watchdog of both local and international corruption, interprets corruption as “misuse of entrusted power for private gains”.

A well-known Indian economist has identified five major players in the corruption scene who strengthen the vicious cycle, They are the corrupt politician, corrupt bureaucrat, corrupt businessman, corrupt NGO and the criminal underworld. In this case we also witnessed perfect communal harmony among the players said to be in a country in ethnic conflict.

Much has been said about the corrupt manner how funds amounting to not less than Rs 3.5 billion (approximately 5% of the VAT revenue) in public funds has been siphoned out using the simplest methods. Investigators have stated the actual amount is expected to be much higher.

What is even more disturbing is the failure of the authorities to detect these frauds that obviously have been going on for a longer period of time. In the eighties several finance companies put up shutters leaving the poor depositors high and dry; then in very recent times the Central Bank took action against Pramuka, a financial institution for financial irregularities.

Commencing 2005 Central Bank initiated an annual “Financial Stability Review” to convey to the public the status of the finance sector. It was just a few days ago that the Central Bank released its latest Financial Stability Review assuring the public that the finance sector is healthy and that there is no cause of alarm.

Unfortunately the Treasury and the Inland Revenue Department (IRD) does not come under this review though the funds held by these institutions are significant. Today the public is losing confidence in the tax collecting mechanism; this is not healthy for a nation seeking higher revenue to rebuild infrastructure of a war-damaged country.

The IRD once manned by the cream of the well-trained public service with good university education was quietly slipping in quality during the last few decades.

Pressurised by fiscal deficits aggravated by high military expenditure and political instability the revenue authorities are constantly under pressure to maximise government revenue. The change over from TT to GST and to VAT was too rapid and one wonders whether the IRD was prepared to meet such challenges.

Despite the growth and complexity of the tax system the IRD hardly changed and the required specialisation in ICT, HR financial management and audit control was behind the times. Such lapses obviously open the doors for leakages. What has happened at the IRD is an eye opener for the whole public sector. Developing low and middle income countries appear to be the most affected by corruption thus increasing poverty and conflicts leading to civil wars.

This vicious circle keeps these poor countries in turmoil depriving many innocents of food, clothing, health care and education. Siphoning away of the government revenue to the benefit of few individuals will increase the burden for many.

The developed donor countries who are the providers of credit to these countries must apply effective pressure to curb corruption particularly at high places as such amounts involved are beyond the fiscal capacities of such countries. Sri Lanka which has now emerged as a middle-income country and boasts of a sound transparent judicial system must come out of its slumber and fight this national enemy of corruption that is as deadlier as an armed terrorist. We are yet to hear of any significant prosecutions by the Permanent Commission for Bribery and Corruption, nor was the euphoria of setting up an anti corruption commission converted to reality. The annual asset declarations by the public officials too have lost its meaning.

Corruption is a symptom of weak governance. The political leadership must realise that benefiting from globalisation is vital for eradication of poverty and a sustainable growth momentum could only be achieved through honest leadership and good governance.

Good governance is a prerequisite to attract foreign investment. Sri Lanka’s poor showing in the Commonwealth Games and the alarming decline in the standard of cricket with adverse effects to the economy too reflects the governance weaknesses as the sports is now considered a global industry.
(Comments can be sent to the writer at suvink@eureka.lk)

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