President Ellen Johnson-Sirleaf Budget Discussion and Analysis

Presented to the Honorable House of Representatives

By: John S. Morlu, II

Auditor General of the Republic of Liberia

June 26, 2007

Mr. Speaker, and Honorable members of the House of Representatives

I want to thank you for inviting me to provide clarifications of the Office of Auditor General’s Review, Analysis and Recommendations on the draft National Budget, 2007/2008. I want to thank the Liberian people for actively participating in this budget debate. In the end, when all is said and done, this budget debate is good for Liberia. It is best practice for citizens and other stakeholders to discuss the national budget before it is passed into law. Arguably, it is far better to prevent flaws during the budget debate than to wait until the damage is done.

Before I go into substantive discussion of the issues, it is important that I make few things clear. First, I stand categorically by the statements I have made and the documents that I have produced. I came to Liberia to do a piece of job for the Liberian people. The Auditor General is not public enemy number one. We might differ on method, approach and strategy, but our overall riding goal remains the same: we must all work hardest to identify weaknesses and vulnerabilities and seek ways to mitigate the risks to system.

Second, the Office of Auditor General has done its job. It is has reviewed and analyzed the draft National Budget and identified significant flaws. It is now left with this Honorable House of Representatives and the House of Senate to accept or reject those observations and recommendations. You have the choice to pass the budget today without any consideration to the opinion and views of the Auditor General. You represent the people. The General Auditing Commission's responsibility ends with presenting you the report so that you can more effectively executive your oversight responsibilities.

Third, this is the first time in the history of the Republic of Liberia that we have a genuinely independent Office of Auditor General reporting to the National Legislature. So I do understand the uneasiness and confusion this has created as we all seek to lay down a solid foundation for the way forward. But as you know, it is not an easy task to start up a new process, much less an important accountability and transparency institution like the General Auditing Commission.

Fourth, and more importantly, I also want to let the Liberian people know that the President of the Republic of Liberia, Madam Ellen Johnson Sirleaf, encouraged me to come home and assist her government in fighting corruption. She is arguably my #1 supporter in this nation, with or without me being an Auditor General. She has demonstrated her commitment to fighting corruption first by insisting and working the hardest as head of the Governance Reform Commission to move the General Auditing Commission under the National Legislative, which is consistent with international best practices. Previously, the GAC reported to the President of Liberia.

The change of reporting to the National Legislature occurred through a legislation in June 2005. So while the GAC is a constitutionally created institution as contained in Article 89, its independence as an institution that is amendable to the National Legislature is an effort by President Sirleaf.

President Sirleaf, unlike many presidents before her, took a bold and unambiguous stance to encourage the international community to recruit in an open and competitive manner, an independent Auditor General that she would appoint. This again demonstrates her commitment to fighting fraud, waste and abuse.

I asked her once while we talked on the phone, “Madam President, why are you doing this? The international community could pick someone who is not in line with how people do things in Liberia. She responded, “John, I need the best auditor general to assist me to fight corruption. We need to end the corruption in Liberia so that we can move ahead to build our country.” And she said, “I strongly encourage you to apply, because I believe you will do a good job.” After I was selected, we talked for several months; I was still jittery about coming home since I have a young wife and 4 small boys, which meant my wife could not come with me at this time. I was also concerned about creating a gap in my career since I was now in mid-level management in a major American corporation.

But after talking through it with my family, my employer and the President, I agreed to come home for one reason and one reason only: That is to assist her administration and the National Legislature in routing out corruption. President Sirleaf is doing her utmost to fight corruption. But she cannot do it all by herself. We have an obligation to our nation to assist her in her fight to end fraud, waste and abuse in government financial management and programs. If she succeeds in fighting fraud, waste and abuse and rebuild our battered nation, we all would benefit. Her success is therefore everyone’s success, and her failure is our collective failure.

So the comments, the review and analysis of the draft national budget are consistent with assisting this administration to succeed in doing things based on best international practices and the highest level of integrity. In fact, auditing budgets has become a regular practice both in the private sector and the public sector. In auditing we called it attestation services.

As a professional with experience ranging from budgeting, financial reporting, auditing and fraud investigations, I wrote the National Legislature on March 22, 2007 to provide funding to audit the draft National Budget so as to ensure that all funds belonging to the Liberian people were fully accounted for in the draft National Budget. The budget is indeed the most important policy document in any country, because it reflects national priorities. It is the nexus of policy declarations and government’s plan for the economy and citizens’ wellbeing.

Giving their hectic schedules, the President and the National Legislature cannot read every page of a budget document, much less a budget document without page numbers or table of content. Some might get fustrated that the Auditor General has identified significant flaws within the Budget, but the facts remain that these flaws indeed make the draft National Budget not transparent, not accountable, and not auditable. It also makes the draft National Budget not to represent the actual financial position of the Liberian nation.

So the argument that it is a pre-audit, not a post audit, misses the central point. Every audit firm performs pre-audit activities to assess the risk of financial misstatement due to fraud or errors, and it is in fact a prerequisite for audit planning. For example, how many auditors one needs to audit the National Legislature depends on the result of pre-audit activities! The issue of independence also has nothing to do with public statements. It relates to material interest, which is conflict of interest. For instance, I will not be a part of an audit nor will I supervise an audit conducted at a government agency in which a family member or business partner is in major decision making position, like the Bureau of Maritime, because no matter how objective I am, the public will perceive a conflict of interest. That is the AICPA and PCAOB definition of independence.

So I believe all the noise has arisen due to lack of experience and exposure in modern auditing techniques by some people. Hence forth, I agree with you Mr. Speaker and Honorable members of the House of Representatives, to focus our attention on the substance of the debate over the draft National Budget. Thus far, I have not read any substantive rejections of the contentions raised in the Office of Auditor General Review, Analysis and Recommendations of the draft National Budget.

Instead, someone has tried to divert unsuccessfully, public attention from the real issues that face this nation, which is accounting for all the revenues so that we can generate more revenues to develop our country. Without us showing all of our revenues in the draft National Budget, we will not be able to program proper accountable expenditure to build this nation. The world is watching us. The Liberian people are looking up to you to make things right, to make their lives better. But we can only do so by ending fraud, waste and abuse. There is no better time to do it than during this budget debate. As Auditor General of Liberia, I have done my part by presenting to you facts as they relate to the draft National Budget. We can disagree on strategy and methods, but we must not disagree on the facts and the substance of the debate.

Facts do not lie, Mr. Speaker. I come prepared to answer any question on financial matters and our fight against fraud, waste and abuse. In this world one must not go to a battle unprepared. I have the facts and figures to back up my claims and assertions.

Again, so far no one in the administration has refuted what I have said, except to say I am obstructing and that I do not understand the reality of the budget process in Liberia. Well, I do not want to understand a budget reality that is not transparent and that leaves out a chunk of the nation’s revenue. Sometime, Mr. Speaker, it is important that people admit to the truth and seek ways to remedy a malady.

The Office of the Auditor General exists to assist the government to succeed by providing technical advice, expert opinion and auditing to hold people accountable. We are indeed a part of the government, although the GAC is the external audit agency. Again, Mr. Speaker, if President Sirleaf’s administration does not succeed in fighting fraud, waste and abuse, we all have failed. I take this responsibility rather seriously.

So while I do not have a job to protect in Liberia, I have a single interest to protect, the success of the Sirleaf led government, because if she succeeds, all Liberians will succeed. And in so doing, the President and the National Legislature depend on the Office of Auditor General to present nothing but the facts, as they are available. That is what President Sirleaf wants. That is what the National Legislature wants. That is what the Liberian people want. That is what the international partners want. And that is what the Office of Auditor General will provide without fear or favor.

Now let me give you a few facts as I wait for your comments and questions.

First, a manual count of the draft budget puts the pages at 360. But only 3 pages are devoted to revenues. The administration says it will collect US$15 million in corporate taxes but does not indicate how many corporations in Liberia pay corporate income tax. So how was this number derived? This same analysis can be repeated for every line in the budget. No details, no assumptions, etc. How can we know that the numbers are correct? How?

I have learned there are 91 plus revenue codes in Liberia but the draft National Budget has just 33 of them? Where are the rest?

Second, the budget is a projection, as you can read from the top of the draft National Budget. I am told by the President, the Budget Director and the international community that we are operating on a cash basis budget. So, like the United Nations Panel of Experts, I maintain that the Bureau of the Budget needed to make a projection for year end surplus cash from savings in expenses and excess revenues. On May 22, 2007, there was a cash balance at the Central Bank of US47 million. By the way, in the recast budget, they also left out an “opening balance of US$1.97 million” as reflected in the Panel report in December 2006. Is the UN Panel wrong too for insisting on an opening balance? This is fundamental in accounting 101.

In an attempt to circumvent the issue, a Ministry of Finance Press Release provides an unsupported excuse. It said, we do not need an opening balance since we are operating on a “Fiscal Budget.” What is a fiscal budget? In any event, if it is not a cash basis budget, the Minister of Finance should provide a Balance Sheet and Cash Flow Statements to show the cash position of the Republic of Liberia, at the date the Fiscal Budget was produced. Produce a Balance Sheet and Cash Flow, or include a projection of the year end surplus in the Cash Budget.

In December 2006, the UN Panel of Experts reported, “The new Government, however, had problems in spending, which left more than 50 per cent of the budget to be spent in the last month - June - of the recast budget period,” adding, “At present, more emphasis is being given to the release of funds than to performance and value for money.”

The President has decried the bogus transactions and payments to bogus entities. She called it syndicated. If the administration cannot project this surplus as an opening balance, it could be spent without consideration for value for money.

As of June 22, 2007, the Liberian Government has a US$31,841,540 cash balance. Can we spend all that money within 8 days, while we are still generating revenue. Without even taking into consideration the additional revenue generated between May 22, 2007 to June 22, 2007, we have gone from US$47 million down to a round up of US$32 million. That is US$15 million spent in one month. What are they spending money on? It is just a run on the bank to exhaust money before the fiscal year ends without consideration what the money is spent on how? Arguably, would not that be considered fiscal irresponsibility, a waste of taxpayer’s money?

Third, since the sanctions have been lifted, where is the money in the draft national budget for the following? Show the Liberian people the revenue from the following; to fail to do so is to suggest that there was no justification for the resources expended on lobbying to lift the sanctions:

Diamond

Gold

Timber

Palm oil

Iron ore

Fishery

Rubber

Other natural resources

Fourth, how can we have two budgets for two offices within the Ministry of State for doing the same things, word for word program descriptions, word for word objectives and word for word list of major activities? It would have been a mistake if the two offices had the same figures. But one office has US300,557 and the other one has US318,000. Is this one of the bogus entities? Is this why there are no page numbers and table of contents? How can the administration explain this away?

Here are facts at the ministry of state, Republic of Liberia-different budgets for the same function.

	Code: 5-1-02-02	Code: 5-1-02-09
Program description	The financial management department provides financial services to the Office of the President, the Ministry of State, and serves as a liaison between the Executive Mansion on the one hand and the Ministry of Finance, Bureau of the Budget and Central Bank on the other. The financial management department provides financial services to the Office of the President, the Ministry of State, and serves as a liaison between the Executive Mansion on the one hand and the Ministry of Finance, Bureau of the Budget and Central Bank on the other	The financial management department provides financial services to the Office of the President, the Ministry of State, and serves as a liaison between the Executive Mansion on the one hand and the Ministry of Finance, Bureau of the Budget and Central Bank on the other. The financial management department provides financial services to the Office of the President, the Ministry of State, and serves as a liaison between the Executive Mansion on the one hand and the Ministry of Finance, Bureau of the Budget and Central Bank on the other
Measurable Program objectives	The department wishes to automate the financial records, print 250 booklets of the various financial forms and properly execute the millions of dollars budgeted for the ten (10) programs of the Ministry of State. The department wishes to automate the financial records, print 250 booklets of the various financial forms and properly execute the millions of dollars budgeted for the ten (10) programs of the Ministry of State.	The department wishes to automate the financial records, print 250 booklets of the various financial forms and properly execute the millions of dollars budgeted for the ten (10) programs of the Ministry of State. The department wishes to automate the financial records, print 250 booklets of the various financial forms and properly execute the millions of dollars budgeted for the ten (10) programs of the Ministry of State.
List of Important Activities	1. Formulation and execution of the ministry budget 2. Preparation of payrolls and payment of salaries 3. Preparation of financial documents and reports 4. Classifying, analyzing and recording of financial transactions 5. Custodian of financial documents and information 1. Formulation and execution of the ministry budget 2. Preparation of payrolls and payment of salaries 3. Preparation of financial documents and reports 4. Classifying, analyzing and recording of financial transactions 5. Custodian of financial documents and information	1. Formulation and execution of the ministry budget 2. Preparation of payrolls and payment of salaries 3. Preparation of financial documents and reports 4. Classifying, analyzing and recording of financial transactions 5. Custodian of financial documents and information 1. Formulation and execution of the ministry budget 2. Preparation of payrolls and payment of salaries 3. Preparation of financial documents and reports 4. Classifying, analyzing and recording of financial transactions 5. Custodian of financial documents and information
Annual Budget	US300,557	US$318,008

Fifth, there is a Ministry of Finance record of US$28 million outstanding taxes. But then the Ministry of Finance only reported US$1.6 million. Why? Where are also the provisions for additional tax assessments?

Sixth, in the draft National Budget, there are boxes to indicate the number of employees. In some ministries and agencies, the numbers are given, in others nothing is provided. How did they derive the payroll figures, if they do not know the number of employees at a particular ministry? Is the Bureau of the Budget not encouraging fictitious payrolls? Is it a mere guess work they are doing?

Seventh, our tax laws were developed in 2000 under the presidency of Charges Taylor. So are our custom laws. Even the IMF Staff Monitoring Report indicates that the discretions in the tax laws for granting waivers, reductions and exemptions reduces the tax base and creates a high degree of complexity. I also believe that the discretionary nature of the custom and tax code creates uncertainty in revenue forecasting making it rather difficult to adequately determine the true revenue position of this nation. The President has committed to reform the tax code, so is our international partners especially the IMF. But is it right to pass another budget under the 2000 Revenue Code, a tax and custom codes that were developed under different circumstances and one which under rates our nation’s revenue generating capacity?

The most important economic document in any country is the national budget. We have learned a managing director has been dismissed from RIA for waiving almost US$100,000 in duties to a cell phone company. How will the administration ever built this Nation when people are waiving taxes and custom duties? The Revenue Code of Liberia 2000 says that the Minister of Finance should report 60 days after the end of the calendar year the value of tax exemptions and waivers to the National Legislature and that the document should be made public. Has she done that? Why? Is it because the value of waivers and exemptions are a significant portion of amount collected?

Eighth, in our system of democracy, all funds generated by the Liberian government must be first appropriated by the National Legislature. Public Corporations must be included in the draft National Budget as it is done elsewhere. In fact, why do we have some public corporations in the draft National Budget and others left out? It seems that one surest way to be out of the Budget is to make money. Leaving any public corporation out leads to abuse and corruption. For instance, LPRC has contributed a meager US$500,000 to the 2006/2007 National Budget. But the same LPRC has made charitable donations to the tune of US$480,000 and another US$251,000 to sports sponsorship. Honorable Speaker, how can LPRC donate as much as it gives the nation. This is what the UN Panel reported in its June 2007 Report. The facts are there. Honorable Speaker, also you have noticed that the biggest outcry from the public about corruption has been at the public corporations set aside of the Budget. So what is the benefit to the Liberian people for setting out the revenue generating institutions of government? NPA says it lost US$70,000 under this administration while it made US$2.041 million under the interim government. Let the Liberian people do the math.

Ninth, the President has been travelling to seek assistance. We know that Liberia is not receiving direct budget support from donors. But we also know that international partners are financing institutions directly like the General Auditing Commission. Where is the listing of grants per institution and to the Government of Liberia? How come they are not included in the draft National Budget? Let me remind the Honorable Members of the Legislature that during the recast budget, the US$1 million grant from China, and the US$ 4 million from South Africa have yet to be accounted for, as reflected both in the December 2006 and June 2007 UN Panel of Experts Reports. How can one be assured that the Liberian government institutions are not paying for things that are already paid for by the international partners at various line ministries and agencies?

Tenth, the Ministry of Finance is publishing what it calls a performance report. It is not a performance report, since it does not indicate how and on what the money was spent. It basically lists what has been spent and what is left. But the Legislature has to know on what the funds were spent. Last year during the recast budget, for example, the UN Panel of Experts reported that we spent US$5 million on education without showing how many new schools were opened, new teachers hired, schools renovated etc. In 2006, we spent another US$10 million without quantity performance measurement of what that money was spent on. Same with healthcare, etc. The biggest excuse is that they do not have disaggregated data. Butt the lack of disaggregated data did not stop the administration from spending but it stops them from reporting?

How can the Legislature provide one more dollar to any institution without knowing what the 2006/2007 money was spent on, first? The Liberian people are interested in how much has been spent, but more importantly on what that money was spent. How many roads were built or renovated? How many public buildings were renovated? How many new students enrolled. How many new schools and hospital built. How many hospitals were renovated.

Eleventh, Liberia has two currencies as legal tender. Our Revenue Code says all books of accounts be kept in Liberian dollar. In the draft Budget, we do not know whether amounts are in Korean Yuam, Japanese Yen, American Dollars, or Mexican Peso - nor do we know the exchange rate. Well, let us assume for the sake of argument that the draft National Budget is in US dollars. Are we not paying civil servants in Liberian Dollars? So at what exchange rate did the administration use to covert the Liberian Dollar into the US Dollar figures in the draft National Budget? The Finance Ministry says disclosing the exchange rate will lead to speculation. What speculation? The last time I check, Liberia did not have a financial market to speculate. But should not that be the concern of the Central Bank? Without an exchange rate, we cannot evaluate the true value of reported figures, which would hurt civil servants who are receiving payments in Liberian Dollars.

Twelfth, why would the administration provide funding for institutions that do not exist by law? Does the GRC exist by law? Does the Bureau of Veteran Affairs exist by law? Is Liberia a nation of lawlessness? How can the National Legislature finance illegal institutions? Please refer to the second to the last page of the draft National Budget.

Thirteenth, the Office of Auditor General has presented a list of institutions that are collecting monies such as fees that are not reported in the draft National Budget. It is unconstitutional for any entity to collect money and spend it without first being appropriated. Why would the administration want to undermine this constitutional provision? See listing of some of the institutions on page 39 through 43 of the Review, Analysis and Recommendations.

Fourteenth, where are the dividends from government shareholdings like Cemenco, LBDI etc. Are we not receiving dividends?

Fifteenth, there seems to be a considerable downplay in the draft National Budget of significant pronouncements of high priority areas. In the draft National Budget, high priority spending do not reflect security and defense, governance and fighting corruption, employment and the economy, etc. Are those not high priorities?

Mr. Speaker, The above are some of the core issues identified in the draft budget.

The rest of Liberia is also waiting-and patiently, too. Yet, the National Legislature has a real challenge to ensure that the 2007/2008 draft National Budget is all-inclusive…with all revenues and revenue-generating entities accounted for and reported.

Honorable members of the House of Representatives…Thank you for your undivided attention.

I will now brace up for your comments and questions on the 2007/2008 draft National Budget.

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