"A Donor's Accountability to Aid Recipients"
View of the Recipient Country: Challenges of Accounting for Donor’s Funds in Diffuse Framework
Delivered By: John S. Morlu II, Auditor General, RL
17 March 2011, London, Great Britain.
April 5, 2011
There are so many issues that I can discuss from the recipient country’s perspective; as indicated by the Chair, there is so much we can offer as we have been on the frontline on many of these issues in Liberia. But I will try to limit my discussion to the top level issues that I believe can improve mutual accountability, between donor and recipient countries like Liberia. You want me to cut through the theories and give you practical experience.
I will divide the presentation into two parts. First, I will give you the lay basic as it is practiced in Liberia. And then I will put forth some basic simple solutions that, on the basis of experience, can improve mutual accountability. So let me spend a couple of minutes discussing with you the foundational issues so that you can get an appreciation of the basic of my presentation and arguments put forth.
I am already fortunate to have two participants in the room who have attempted to use Liberia as examples based on their experiences in Liberia or in dealing with a Liberian Government official. There is a gentleman who indicated that he worked in Liberia on a DFID sponsored program during the interim Government. He explained that he was asked to fudge the numbers, double counting the number of people that were actually disarmed. There were lot of discussions in the previous sections on donors’ experts who are on the ground in recipient countries being pressured to report results so many a times to fudge the numbers. Karin Christianiansen, Director of Publish What You Fund explained that she met the Liberia’s Minister of Finance in Washington. The Minister registered his frustration that he knows there is “double dipping” going on Liberia, where line ministries are reporting the same things funded by donors but he cannot stop it because these expenditure are off budget. This is a sober reality.
I hear a whole lot about Publish What You Paid through the LEITI program in Liberia. This is to improve transparency in the extractive industries. Now we have “Publish What You Fund” to improve transparency in donor funded projects. For me, I also believe in Publish What You Budget, because as an Auditor General, my first concern is what is being funded from internally generated cash flows. This is why my first intervention in Liberia was that I analyzed the budget and submitted the report to the Parliament, which generated not only additional US$16.8 million in real cash flow but also got the citizens interested in the budget. Budget debates have since become a national affairs making Liberia to improve in the rankings indicated in the Open Budget Index. For me, I told EU then, on the basis of what you paid me, the US$16.8 million is real value for money and if this was in America I would have gotten an immediate promotion for adding value to the shareholders, as this was an outright bottom line improvement in budgets. But instead of commending me, I was nearly chased out of Liberia for what was claimed then as a “treasonable offense”. But today in Liberia, there is likely a general agreement the budget debate of 2007 has laid the foundation for continued budget transparency in Liberia.
Some of you in this hall come from the private working environment as consultants. I too was once a senior consultant with BearingPoint, formerly KPMG working on financial reporting matters at the Federal and state levels. Some of you work for international NGO. I too worked for an international NGO ensuring compliance in the expending of USAID funds in former Soviet Union Countries. There are quite a number of private sector folks also at this conference. I also worked in private sector. So I understand the adverse slap and push back one can receive when trying to bring in innovation and entrepreneurial in Government sector. But I have not experience a forceful push back as I have in Liberia in all three sectors I have worked.
When I first arrived in Liberia, I recruited the best young and dynamic staff with little experience or nearly zero experience. But I knew one thing, they had integrity and were willing to learn and make a difference. A difference for their country, government, and the people of Liberia. They had the profound passion to push change and to preserve and withstand the challenges that the GAC was going to face to bring about change in financial management in Government. At our first training, of 127 staff, I asked a simple question as I was asked to make an introductory remark. I asked the staff to name me a few wealthy Liberians who they believe or know obtained their wealth through the private sector, not Government. After a few minutes, they came up with two individuals. But soon, the debate started on the second individual because it was said he got his clients through his close contacts with the President then.
Essentially, the basic reality was that they could only name two Liberians they believe obtained their wealth outside of Government. I felt then I have got my work cut out for me…it was going to be a long haul because of no systems and controls after 14 plus years of civil war, low integrity environment or control environment as we as auditors called it, and corruption and misuse of public funds was an accepted practice with lot of faulty rationalization why corruption should be accepted, as some would say Corruption has been around since JJR Roberts time. JJR Roberts was the first President of Liberia (1848-1856).
So as an Auditor General, I am also concern about the same things that the Rt Hon Minister
Alan Duncan mentioned as the driving consideration in the new aid formula for DFID: Measuring Results (value for money), preventing corruption and misuse and ensuring accountability and transparency.
In passing, let me say it is important that all consider the problem that World Vision faced in Liberia with USAID funds and today the American Government is prosecuting those who stole funds channeled through World Vision to assist the needy in Liberia. It was reported that up to 90 percent or more of the funds provided was mismanagement. So it is not just about double dipping but international NGOs are also faced with a huge challenge as to how to fight corruption in post war country like Liberia so as to maintain their own reputation. The funds provided to World Vision did not go through the National Budget system but was still mismanaged by Liberians and others working for World Vision.
I have provided some clue with respect to my own work in Liberia and the particular challenges that any upstanding Auditor General would face, if one were to attempt to do what is the right for the country. Let me now turn to the basic solutions.
First, donors should use the country systems to put more direct budget support through the National Budget System to be appropriated by the National Legislature. The following will support my position and it is also in line with Ben Dickinson of OECD. Ben argued that his research is showing that donors do not respond as quickly to provide direct budget support with noted improvements in financial management, so this could create a disincentive. There is always going to be some form of fiduciary risks in using country systems but using the country systems will achieve the following:
• It will prevent donors from financing NGOs that are owned by Government officials. There is not much of a consideration of conflict of interest in Liberia as corruption. There are instances in my audits where I have seen government officials or their families owning NGOs. How many donors spent time doing background checks on NGOs implementing projects for them. There is no code of conduct that prohibits Government officials in Liberia to relinquish direct and indirect interests in businesses and NGos they run while serving in Government.
• Donors can have more active impact on the budget transparency as they can actively participate in the budgeting process, budget execution, financial reporting and auditing with more direct budget support using country systems. This will force Government to become transparent.
• It will prevent the double or triple counting dilemma that the Minister of Finance indicated to be a concern. I can tell you in one of my audits in the southeast, a road project was indicated to have been done by United Nation Mission in Liberia (UNMIL), an NGO financed by a donor and the Ministry of Public Works. But we later determined and established through the audits that it was actually done by UNMIL through its Quick Impact Project.
• It will ensure ownership. Today, in Liberia when it is reported that so and so billions have been spent in Liberia, Liberians will say, on whom and where did the money go. Government also does not take responsibility for the huge amount announce because it claimed that it does not have all the information on donor spending either by the use of donor’s systems or through implementers like local or international NGOs.
• It would enable the Auditor General and by extension the National Legislature to provide an effective oversight if the money is put through the budgeting system. This is why I have fought for 4 years to ensure that even our state owned enterprises and all independent autonomous agencies are brought back into the budgeting system and funded there from. Too much off budget expenditure make my work more difficult and as I am sure it was also the same for the Minister of Finance, as he or she cannot see the true picture of financial position of the Government when so much money is spent outside of the system. Citizens are also denied the opportunity to see who spending on their behalf.
• It would also serve as a single point for all the various donor systems. A uniform set of reports would be produced using the same financial management systems.
• Lastly, giving money directly through the National Budget as budget support would serve as an effective carrot and stick. It is far more painful for a donor to pull out of a direct budget support arrangement. Pulling out because of lack of transparency and accountability will send a serious signal and create a damaging political headache for any President. EU is proving some direct budget support. If EU were to decide to pull out, it will be resisted more than when DFID left Liberia and started putting its money through pool funds. Many Liberians do not even know that DFID scaled down in Liberia. Sierra Leone Auditor General was prohibited to publish audit reports but when DFID, who was putting in lot of budget support, insisted on publishing audits of the consolidated accounts, it was down as it would be problematic for DFID to pull out of the budget support arrangement. In 2008, the Auditor General of Sierra Leone was released of that non- internationally accepted legal restriction.
Second, donors should use a system approach. Instead of tweaking on the edges of fundamental issues, there is a need to take a big approach instead of the normal project driven approaches. For example, DFID used the PwC to create an Office of Financial Management (OFM) at the Ministry of Finance. It was not just take us go in and build internal audit, or procurement or accounting. It was, let us go in and redesign business processes to build a complete financial management system at the Ministry of Health.
Third, keep donor conditionality simple and if donors do not, they will not get the necessary results. It is okay to come to Liberia and say we should produce financial statements on the basis of international public sector accounting standards. But the reality is that we are either not able or are unwilling to produce regular bank reconciliations, prepares an asset register, or pre-numbered our accounting records. We even have some employees who do not have employment letters and we are talking about very difficult reporting requirements. If a person cannot do the simple things, how can they do the big things. Keep it simple and insist on evidence of performance. I mean really evidence of performance, not just a speech from a Government official.
Fourth, donors should measure performance to ensure value for money. This means, again, gathering real evidence and punishing Government with immediate withdrawal of funds for providing false and misleading information. For instance, it was reported repeatedly the number of girls enrolled in schools. But when found out during the audits that the Minister of Education did not even know the number of schools, so can anyone determine the total number of enrollment of girls and boys in schools when you do not know the total number of schools. But this is possible in Liberia. How you do as a donor to gather real and objective evidence? Donors should carryout regular independent evaluation or external audits. This will keep them honest in giving real numbers.
Fifth, donors should take more interest in the National Budgeting process. Before you put your money anywhere, it is important to ask the recipient country to show you how it is using its own internally generated cash flow. This will enable donors to compliment and not substitute funding provided for in the National Budget. It will also enable donors to see the waste, so they are not funding projects that have already being financed in the National Budget year over year. I know IMF, World Bank; EU, US etc are interested in the National Budget. But all donors including their implementing partners (NGOs) should also take keen interest in the proposed and approved national budget.
Finally, Donors should publish what they fund. In Liberia, when we give audit reports to those in towns and villages, they know what was in the budget for them; they then demand accountability on the part of their county or district leadership. This approach of informing the public as to what is due them is an effective tool to generate citizens’ action. Additionally, when it was revealed that US$1.5 million was spent on the Jallah Town Road, a major road in Monrovia the citizens began to question the quality of work and value for money. It was indicated that the Jallah Town Road was try and error. But that was US$1.5 million try and error in a small country that is severely aid dependent and begging for more aid.
I believe that if you want transparency and accountability, put a price tag on each project you fund so that the citizens can know how much was spent on that project and then they can make their own independent evaluation. Likewise, donors should insist that all Government agencies--central government institution and state own enterprisedo the same. Thomas Jefferson argued that the currency of democracy is information and this is why in many Constitutions it is indicated that the public has a right to know.
Publish What You Fund. Publish What You Paid. Publish What You Fund Through the National Budget. Publish What You Audit.