Public Debt Auditing by SAI Maldives Financial Audits on the Statement of Public Debt and Statement of Government Guarantees Presentation to WGPD 2018 Annual Meeting
Maldives • An archipelago of 1,192 coral islands grouped into 26 natural coral atolls in the Indian Ocean. • Islands measures less than 1.8 metres above sea level. • 192 islands are inhabited by its 400,000 inhabitants. • 900 islands remain uninhabited islands except for more than 100 islands that have been developed for the tourist market as resorts. • With its abundant sea life and sandy beaches, Maldives is portrayed as a tropical paradise. • Tourism accounts for 28% of the GDP. • Fisheries accounts for 3.5% of GDP and 20% of local employment. • Over 90% of the state government income comes from import duties and tourism- related taxes.
Institutional Arrangements for Public Debt Management Formulate and Implement Fiscal Policy. Transacts Loans and Borrowings MOFT Issues Government Guarantees on behalf of the Government ERMD Front Office acts as the Debt Middle Office Management Office Back Office (DMO)
Institutional Arrangements for Public Debt Management (Cont.) -The accounting records 1) Treasury Bills (28-day, 91- related to treasury bills and MMA day, 182-day 364-day) bonds are maintained at the MMA with periodical -As an agent of reporting of the balances to 2) Treasury Bonds - medium The MOFT. the Government to long-term debt securities pay a coupon periodically over the life of the security manages the Central -The accounting records related to treasury bills and issuance of bonds are not recorded at a 3) Islamic Securities Bank transaction level using the Mudharabah, Murabahah CSDRMS. Sukuk Murabahah.
Financial Reporting Requirement MOFT Receipts and Payments Requires to produce the Budget Statements Consolidated Financial liabilities of the State. Statements of in accordance with generally Statements of Public Debt. the State accepted account principles to the borrowing of loans Requires to on behalf of the State. comply with public finance legislations The report should include: Requires to produce a debt Principle Amount of Loans, report on a quarterly basis Interests incurred, Amounts disbursed Outstanding balances
Mandate of the Auditor General 1. Public Finance Act • Statement of Comparison of Budget and Actuals Requires Government to prepare • Statement of Assets and submit to the Auditor • Statement of Liabilities General the Consolidated • Borrowings of the State Financial Statements of the State • Contingent Labilities which includes: • Audit State Offices, Accounts, and State Owned Enterprises 2. Audit Act • Enhance the performance and accountability of the accounting and financial systems of State Requires Auditor General is Offices, State Owned Enterprises including the Joint Ventures responsible to • Established Standards Policies and Procedures of Auditing in Maldives • Fiscal Strategy Statement • (enhances the public awareness about state fiscal policy, established a mechanism to 3. Fiscal Responsibility Act measure actions carried out by the Government to attain the goals of state fiscal policy) Requires Auditor General to provide opinion on the following • Budget Position Report statements produced by the • (provide information on the accomplishment by the Government of the fiscal policy’s goals) Government relating to government budget and public • State Debt Strategy debt. These reports includes: • (report the level public debt and how the debt level has been established , Comprehend And Report on The Actions Assumed By The Government In Managing Public Debt)
Our Experience In Auditing Public Debt Started During the year 2011. Audit of Debt Statement for 2012 issued in sept 2013, Public Publications Debt Statement for 2013 issued in March 2018. Debt Statement Guarantee Statement for 2012 issued in August 2017, Debts Statement for 2014 and 2015 is expected to be issued by 31/5/2018. Backlogs Guarantee Statement for 2014 and 2015 is expected to be issued by 31/5/2018
Our Experience In Auditing Public Debt (Cont.) Methodology developed with consultancy support from a former NAO UK and Practices financial audit expert and consultants from KOSI Korp. Initiated in response to the increasing debt levels and the Objectives concerns raised by members of Parliament of the Public Accounts Committee. Audit of Public Debt Statement PAC requested to conduct a “comprehensive debt audit” Requested proved to be challenging. Scope Decided to narrow down and focus on the more important issues of public debt. Including financial opinion Standard US GAO’s public debt reporting practices. Applied
Statement of Public Debt – Audit Scope Public Account’s Committee Requisition • Conduct a “comprehensive debt audit”. Requested proved to be challenging. Scope • Narrow down and focus on the more important issues of public debt including financial opinion Financial Opinion - truth and fairness of the Statement of Public Debt • Risk Based Audit, Materiality, Audit Assertions (Completeness, Accuracy, Existence, Measurement, Fair Presentation) • Financial Reporting Framework for Public Debt – In the next additional slide can you please include the qualification basis from one of our debt reports as an example • Not defined by Accounting Standards • IMF Debt Guide • Definition of Gross Debt • ”all liabilities that are debt instruments”. • Debt instruments • “…financial claims that require payment(s) of interest and/or principal by the debtor to the creditor at a date, or dates in the future”. • Institutional Coverage of Government • GL1 – Budgetary Central Government • GL2 – Central Government (GL1 plus extra budgetary units and social security funds • GL3 – GL2 plus state and local governments • GL4 & GL5 • Instrumental Coverage of Debt – Types of Debt Instruments • Valuation of Debt Instruments (Market or Nominal) • Consolidation of Intra-Government Holdings
Statement of Public Debt – Audit Scope (Cont) Financial Opinion - truth and fairness of the Statement of Public Debt • Risk Based Audit, Materiality, Audit Assertions (Completeness, Accuracy, Existence, Measurement, Fair Presentation) • Financial Reporting Framework for Public Debt – Not defined by Accounting Standards • IMF Debt Guide • Definition of Gross Debt • ”all liabilities that are debt instruments”. • Debt instruments • “…financial claims that require payment(s) of interest and/or principal by the debtor to the creditor at a date, or dates in the future”. • Institutional Coverage of Government • GL1 – Budgetary Central Government • GL2 – Central Government (GL1 plus extra budgetary units and social security funds • GL3 – GL2 plus state and local governments • GL4 & GL5 • Instrumental Coverage of Debt – Types of Debt Instruments • Valuation of Debt Instruments (Market or Nominal) • Consolidation of Intra-Government Holdings
Statement of Public Debt – Audit Scope (cont.) Compliance Opinion - compliance with applicable legislative laws, regulations and agreements • Borrowing procedures • Reporting procedures • Borrowing limits • Payment schedules Other Matters – Reference to Published Debt Reports • Trend Analysis • Debt Management Strategy • Debt Sustainability Analysis • On-lending to SOEs
Finding Reported on the Statement of Public Debt 2013 • As per Section 11.05 of the Public Finance Regulations (issued on 11/02/2009) the Ministry shall maintain debt records and prepare Quarterly Public Debt Reports within 45 days of each Quarter end date. 1) Non Preparation of • Contrary to this MoFT has not prepared the quarterly Debt Reports for the year 2013. Quarterly Public Debt Reports • As per the Agency agreement titled “Cash and Domestic Debt Management” between MoFT and Central Bank MoFT the treasury account shall not be overdrawn by over MVR 100,000,000 at the end of any month. 2) Public Bank • Contrary to this as at 31st December 2013 the PBA was overdrawn by MVR Account Overdraft Facility Exceeds 2,475,985,941. the Limits • A Medium-Term Debt Management Strategy (MTDS) was prepared by MoFT for the year 2012-2014 and endorsed by the President. The key objectives stated in this strategy include: • To ensure that government financing needs are met at reasonable costs, subject to a prudent level of risk. • To develop a domestic debt market with a long maturity profile of instruments and a diversified investor base. 3) Lack of Debt Management • MoFT has not implemented Debt Management Strategy Strategy
Audit of the Statement of Government Guarantees Government provides Contingent Liabilities – guarantees to financial Recently Guarantees provided Disclosure required on the institutions on behalf of SOEs to Private Parties for major nature of these contingent as the Guarantor of the loan in projects. government guarantees. case of default. Confirmations sought from financial institutions and Separate audit and procedures checked for reconciliation with carried to ascertain the accounting records of SOEs exposure of the government and MOFT. guarantees at year end.
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