News
IMF-backed reform directs Auditor General to flag fraud for law enforcement action
View(s):By Namini Wijedasa
Under an IMF-recommended amendment to the National Audit Act (NAA), the Auditor-General (AG) will be bound to notify the Chief Accountant of an audited entity to “immediately” complain to law enforcement if the AG, or anyone authorised by him, has “reasonable grounds to believe” fraud, corruption or misappropriation has occurred.
If the accused is the Chief Accounting Officer (CAO), it is the Cabinet Secretary who must report it to law enforcement, states the National Audit (Amendment) Bill, which has now been gazetted by the Ministry of Justice and National Integration.
This mandatory referral of fraud cases—hitherto absent—will significantly enhance financial accountability and is an IMF benchmark to strengthen transparency and rule of law.
The 2023 IMF Governance Diagnostic Assessment for Sri Lanka raised concerns that the link between auditing and accountability was too attenuated (reduced in force, effect, or value) under existing law, which constrains the AG from reporting information to enforcement agencies.
Section 9 of the NAA not only bars the Auditor General from sharing information obtained during the course of an audit with law enforcement bodies in real time—thereby preventing possible investigations and arrests from taking place—it, in fact, creates an offence of sharing information other than “in (the very limited) circumstances” defined in the NAA, the GDA pointed out.
Sri Lanka has also committed under the IMF programme to allow for surcharges to be levied for the misuse of public assets. At present, the Auditor-General is empowered to directly issue such penalties only to local authorities and state universities under laws governing those entities.
In all other cases, including where it concerns ministries and departments, it is the Audit Service Commission (ASC) that reports fraud, negligence, misappropriation or corruption to the CAO of the relevant entity, which has the primary power to impose a surcharge equivalent to the loss or deficiency. If the CAO is implicated, the Secretary to the Treasury or President may assume this power.
However, the National Audit (Amendment) Bill envisages the setting up of an external, independent, expert-based Surcharge Review Committee (SRC) that will directly receive recommendations from the AG to impose these penalties. The SRC then determines the amount to be recovered and oversees the issuance of surcharge certificates. The monies go into the Consolidated Fund, as before.
The proposed amendment requires 15 percent of audit fees to be retained and credited to an Audit Fund, thereby strengthening institutional independence. Penalties for noncompliance have been significantly raised to fines of Rs. 100,000 (previously fines of between Rs. 5,000 and 25,000), or imprisonment up to one year, or both.
The ASC will handle matters such as transfers, promotions and discipline of Audit Service officers as well as have administrative oversight over the National Audit Office. Its powers of surcharge will rest with the SRC.
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