Professional challenge on transparency, accountability

In light of the difficulty and sensitivity in obtaining independent information on Lanka Logistics and Technologies Limited (Lanka Logistics) the following extracts from an article in The Sunday Times (November 26, 2006) are relied upon to shed some background light on the company:

“Lanka Logistics and Technologies Limited is a wholly state-owned limited liability company formed for procurement of equipment and services for the Army, Navy, Air Force and Police.

The Cabinet on April 20 this year approved incorporation of this company as a legal entity under the Companies Act. This company came into being on July 27, 2006 with its primary objective being described as ‘the procurement of goods and services inclusive of research and development and allied activity.’

The wholly owned government company will have as its board of directors the holders of the office of Secretary to the Ministry of Defense and Secretary to the Ministry of Finance and Planning. Jayantha Wickremasinghe has been appointed as Chief Executive Officer (CEO) of the company to manage day-to-day operations.The authorized share capital of the company of one million rupees is divided into 100,000 shares of Rs.10 each. The subscribers to the Memorandum of Association who are initial shareholders are:

1.Nandasena Gotabaya Rajapaksa, Secretary, Ministry of Defense (100 shares)
2.Dr. Punchi Bandara Jayasundera, Secretary, Ministry of Finance (100 shares)
3.Air Chief Marshal Gabadaachchige Donald Perera, Chief of Defence Staff, Joint Operations Headquarters (one share)
4.Lieutenant General Gardihewa Sarath Chandralal Fonseka, Commander of the Sri Lanka Army (one share)
5.Air Marshal Wellarachchige Don Roshan Mahesh James Goonetileke, Commander of the Sri Lanka Air Force (one share)
6.Vice Admiral Wasantha Kumara Jayadeva Karannagoda, Commander of the Sri Lanka Navy (one share), and
7.Yakkdehige Premathilaka Victor Perera, Inspector General of Police, Sri Lanka Police Headquarters (one share).
Those who are subscribers to the Memorandum of Association of Lanka Logistics and Technologies Limited are required in terms of the Articles to transfer the shares held by them on their cessation of office. The Articles have also provided for a residual right for the Secretary to the Ministry of Finance to transfer the shares held by the subscribers in the event of a delay or refusal.”

From the information at hand it clearly appears that Lanka Logistics is a public limited company that is not listed on the Colombo Stock Exchange. As the seven shareholders hold shares in their capacity as defined public officials and are liable to transfer their shares on the cessation of such office, it is clear that the company is a wholly state owned company.

Powers of the Auditor General
The Auditor General is appointed and conferred power under the Constitution of the Democratic Socialist Republic of Sri Lanka (the Constitution).
Article 154 (1) of the Constitution provides:
“The Auditor General shall audit the accounts of all departments of Government, the Offices of the Cabinet of Ministers, the Judicial Services Commission, the Public Services Commission, the Parliamentary Commissioner for Administration, the Secretary-General of Parliament and the Election Commission, local authorities, public corporations and business or other undertakings vested in the Government under any written law.”

I.Public Corporation
Article 170 of the Constitution defines a ‘public corporation’ to mean ‘any corporation, board or other body which was or is established by or under any written law other than the Companies Ordinance, with funds or capital wholly or partly provided by the Government by way of grant, loan or otherwise.”
Although Lanka Logistics is a wholly state owned company, i.e. funded by the Government, it falls outside the scope of a ‘public corporation’ as it was formed under the Companies Act, No. 17 of 1982.

II.Business or other undertaking vested in the government under any written law
Although Lanka Logistics was incorporated under the Companies Act, No. 7 of 1982, it would be difficult to argue that such Act vested the company in the government.
The term ‘vest’ is defined ‘to confer legal rights on someone’. Lanka Logistics is a wholly state owned company as a result of the shareholders holding shares in their official capacity. The Companies Act, No. 7 of 1982, in itself does not confer any legal rights in the company to the government. Accordingly Lanka Logistics will fall outside the scope of this second limb.

Conclusion
In light of the above discussion it appears that the Auditor General’s purview does not extend to Lanka Logistics. It might be worth to note however that despite the absence of the Auditor General’s power to audit the company, the accounts of Lanka Logistics would have to comply with the auditing requirements under the Companies Act, No. 7 of 1982, and that such information will be accessible to the public at the Registrar of Companies. To what extent such information will reflect the true dealings of the company is however uncertain.

The Challenge
The business the company is engaged in is of national importance and information relevant to its business, procurements and other activities may be classified, highly sensitive and confidential in the context of the national security. However, the entirety of the resources and funding of the business activities of the company come out of public finance and therefore gives rise to public accountability, transparency, good governance and ethical conduct.

The Institute of Chartered Accountants, CIMA, Bar Association, OPA and Transparency International are invited by the civil society which contributes to public finance, to form into a committee to develop a set of recommendations on structures, systems, procedures business processes, controls, risk management practices, audit and post implementation reviews that assure good governance, economy, efficiency and effectiveness of procurement, transparency and ethical conduct, to be recommended to the government to be adopted by Lanka Logistics to deliver the public expectations on public institutions, whilst managing the needs for security of sensitive information.