A WORLD BANK COUNTRY STUDY

Bangladesh
FinancialAccozmtability f o r Good Governance

The World Bmd Washington, D.C.

0 2002 The Intemational Bank for Reconstruction and Development / The World Bank 1818 H Street, NW Washington, D C 20433
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ntents
Abstract Preface
V

vi vii viii

Acknowledgment Abbreviations

Executive Summary

1

1 Introduction .

Context 11 Purpose and Scope 12 Structure o f the Report 13

9

2. T h e Architecture of Public Accountability

15

3. Central Government Ministries and Divisions

T h e Control Environment 23 Planning and Budgeting 25 26 T h e budget as a basis for legtimacy Managerial efficiency 26 Results orientation 27 Transparency and participation 28 Procurement and Assets Management 28 Accounting 30 Cash a n d D e b t Management 33 Internal Reporting and M o n i t o r i n g 35 I n t e m a l Audlt 36 E x t e r n a l reporting 37 Reforms in public sector budgeting, accounting, a n d internal control

21

39

4. Local Government

General 43 L o c a l Government Budgeting 44 L o c a l Government Accounting 44 L o c a l Government I n t e m a l Control 45 L o c a l Government Reporting 46 L o c a l Government Internal and External Audlt

41

46

5. Public Enterprises

Nonfinancial Public Enterprises 51 52 Public Enterprise Planning a n d Budgeting Public Enterprise Accounting 53 Public Enterprise Procurement 53 Public Enterprise Internal Control a n d I n t e r n a l Audlt
ll i

49

53

...

Public Enterprise External Reporting 53 54 Public Enterprise External Audlt Nationalized Commercial Banks 54 Departmental Enterprises 56

6. Oversight of U s e of Public Funds External A u l t 59
Audt Methodology A u l t Management
A u l t Reports

57

Structural a n d Constitutional Issues

64 Parliamentary Oversight 67

Training and Professional Development

61 63

59
63

Role o f Parliamentary Committees 67 Composition of Committees 67 Powers a n d Resources o f Committees 68 Transparency 68 Oversight b y Donor Agencies 69 73 Role o f the Press

7. Public Sector Accountants and Auditors

Backwardness o f Public A c c o u n t i n g and Audlting Training 78

75

77

8. Private Sector Accountability Companies 83

81

Registrar o f Joint Stock Companies 84 Securities a n d Exchange Commission 84 84 D h a k a a n d Chittagong Stock Exchanges T h e Institute o f Chartered Accountants o f Bangladesh Commercial banks a n d insurance companies 86 Commercial Banks 86 Insurance Companies 87 88 Nongovernmental Organizations

85

9. Private Sector Accountants and Auditors T h e Structure o f the Profession 93

91 95

Training a n d Professional Development 93 Compliance with Standards a n d Professional Discipline

10. N e x t Steps
References

97

101

1 v

stract
Bangladesh a n d makes recommendations for improvement. With respect to public funds, i t compares the financial management standards a n d practices o f agencies using such funds against a n international or ‘best practice’ standard, and also the standards a n d practices o f the external ‘oversight’ agencies - nine Audit Directorates o f the Comptroller a n d Auditor General’s Office, parliamentary committees concerned with public expenditure, donor agencies, a n d the media. I t assesses w h a t i t would take to qualify the country for programmatic or sector lending in replacement o f all individual project lending. With respect to private funds in the hands o f companies, commercial banks, insurance companies a n d non-govemment organizations, i t examines the regulatory activities of the Registrar of Joint Stock Companies, the Securities and Exchange Commission, the two Stock Exchanges, Bangladesh Bank, NGO Affairs Bureau and the accounting a n d auditing profession that serves both public a n d private sectors.

Ths document assesses the quality of financial accountabhty a n d transparency in

V

eface
This Country Financial Accountability Assessment was conducted by the World Bank's South Asia R e g o n a n d the UNDP Program for Accountability and Transparency, with participation from officers in the M i n i s t r y o f Finance, Comptroller & Auditor General's Office, M i n i s t r y of L o c a l

Government, Institute of Chartered Accountants o f Bangladesh, Parliamentary Financial a n d Mmisterial Oversight Committees and other national stakeholders.

T h e process started with preparation of papers by local consultants in selected areas:

Parliamentary c o n t r o l o f public expendtures.
e

Accountancy profession a n d education. Public sector audting. Budgeting, accounting, reporting and internal control. L o c a l government financial management.

N a t i o n a l authorities discussed leading issues in workshops for each o f the f i r s t four areas a n d responded to the structured questionnaires o f the CFAA (World Bank, 1999c - the revised CFAA P a r t I procedure) a n d UNDP 2000 (the revised CONTACT). T h e questionnaires are not subdivided by level o f govemment a n d were answered mainly in terms of the central government ministries/divisions. This i n f o r m a t i o n was supplemented from local consultants' studes, interviews with officers in representative units, and other sources.

An Intemational Conference on Improving Oversight Functions: Challenges in the N e w M i l l e n n i u m was h e l d in Dhaka, September 10-12, 2000 with top-level political a n d civil service participants a n d inputs from 18 countries. T h e Conference covered parliamentary c o n t r o l o f finance, public audit a n d the private accounting a n d auditing profession. Recommendations o f the Conference have been included in this CFAA.

vi

knowledgments
T i assessment h s
has been prepared by a task team l e d by M. M o z a m m a l H o q u e a n d P.K. Subramanian from the W o r l d B a n k a n d F r e d Schenkelaars and Zahurul A l a m from UNDP. I<apil K a p o o r was the overall T e a m Leader for the task. Anthony Bennett w o r k e d as the principal consultant. T h e other members of the team were Shamsuddin Ahmad, Suraiya Zannath, Z a f r u l Islam, M o h a m m e d Sayeed and O s m a n G h a n i who made useful contributions. T h e assessment i s based on five sectoral studes carried out on Parliamentary Control o f Public Expenditure, Public Sector Audting, Accountancy Profession a n d Education, Public Sector Budgeting, A c c o u n t i n g and Internal Control, and Financial Accountability in L o c a l Government Institutions. These were carried out by five local consultants and a n international consultant.

from h o m e and abroad, Controllers a n d Auditors General from various countries, senior government officials, public and private sector accountants and audtors, leaders o f business, NGO representatives and members o f civil society. W e sincerely acknowledge the contributions made by Syed Yusuf Hossain and Sajedul K a r i m in organizing the conference.

T h e review benefited from a n u m b e r o f workshops a n d also an international conference on “Improving Oversight Functions”, organized by the C&AG under the project Strengthening of C&AG O f f i c e (STAG). T h e conference a n d workshops h a d participation from Parliamentarians

John Hegarty, Peter Dean, D a v i d Shand a n d Piyush Desai acted as peer reviewers for the study. In addtion, useful comments were received from John Fitzsimon, Joe Pernia, Vinod Sahgal,
M a r c Heitner, Rajesh Dayal and M a g d y S o h a n .

Funds for the assessment was p r o v i d e d by the World B a n k a n d UNDP. Sincere words o f thanks go to the German G o v e r n m e n t a n d Government o f the Netherlands who made t h i s C F h h possible by generously providmg funds to UNDP’s Programme for Xccountabdlty and Transparency, a partner with the World B a n k in this endeavor. UNDP p r o v i d e d the funds for the Intemational Conference through the STAG Project. Pauline Tamesis, Shahadat Hossain Russell, Tanjina Rahman, Hasib Ehsan Chowdhury, Joyce M o r m i t a D a s a n d M e h a r A k h t e r IShan p r o v i d e d very useful
assistance.

breviations
ADB ADP
BAS BCS BIM
BSA ASIRP Asian Development B a n k A n n u a l Development Program Agricultural Services I n n o v a t i o n a n d R e f o r m Project Bangladesh Accounting Standard Bangladesh Civil Service Bangladesh Institute o f Management Bangladesh Standards o f Auditing Bangladesh Telegraph a n d Telephone B o a r d Comptroller a n d Auditor General Chartered Accountant C h i e f A c c o u n t i n g Officer City Corporation C h e f Executive O f f i c e r C o u n t r y Financial Accountabdity Assessment Controller General o f Accounts Country Assessment o f Accountabdity And Transparency D i s t r i c t Accounts Officer D h a k a Electricity Supply Authority D e p a r t m e n t for International Development (UK) Director-General D e b t Management a n d Financial Analysis System E c o n o m i c Relations Division, Ministry of Finance Effective Schools Through Enhanced Education Management (project) Financial Management Academy (formerly Aucht and Accounts Training Academy) Financial Management Financial Year. T h e Government of Bangladesh (central a n d local) has a Financial year July 1to June 30. F Y O O means the year July 1,1999 -June 30,2000. Banks use the calendar year, January 1 - December 3 1 Gross D o m e s t i c Product General Financial Rules G o v e r n m e n t Finance Statistics (IMF system) G o v e r n m e n t o f Bangladesh Intemational Accounting Standards Institute o f Chartered Accountants of Bangladesh Institute o f Management Accountants o f Bangladesh Intemational Federation o f Accountants Implementation, Monitoringand Evaluation Division, Minktry o f Planning International Monetary Fund Intemational Organization o f Supreme Audit Institutions International Public Sector Accounting Standards (issued by IFAC) I n t e m a l Revenue Division, M n i s t r y of Finance Intemational Standards of Auditing L o c a l G o v e r n m e n t Institution Management Accounting, Auditing and Budgeting (FIMA course) Master’s Degree in Business Admirustration Management I n f o r m a t i o n System M n i s t r y o f L o c a l Government, Rural Development a n d Cooperatives
Viii

BTTB C&AG CA CAO

cc

CEO CFAA CGA CONTACT DAO
DESA

DfID DG DMFAS ERD ESTEEM FIMA FM FY GDP GFR GFS GOB
IAS

ICAB ICMAB IFAC IMED IMF

IPSAS IRD ISA LGI MAAB MBA MIS MLGRDC

INTOSAI

MOE NCB NFPE NGO NILG 0&M OECD PAC PA0 PARC PATC PC PCR PDB PEC PUC PWD RAO RIBEC RIGA
SAS SCM

SCE SD SUPLA

T&T TI Tk UAO UNCTAD UNDP WASA

STAG

Ministry of Education Nationalized Commercial B a n k Non-Financial Public Enterprise N o n - G o v e r n m e n t Organization N a t i o n a l Institute o f L o c a l Government Operations and Maintenance Organisation for E c o n o m i c Co-operation a n d Development Standing Committee on Public Accounts Principal Accounting O f f i c e r (secretary o f a m i n i s t r y or division) Public Administi-ation Reforms Commission Public Administration Training Centre Parliamentary Committee Project Completion Report Power Development B o a r d Standing Committee on Estimates Standing Committee on Public Undertakings Public Works Department Regional Accounts Officer Reforms in Budgeting a n d Expenditure Control (DfID-assisted project) Reforms in Government Auditing @ffD-assisted project) Subordmate Accounts Service Standing Committees on the Ministries (Parliament) Securities a n d Exchange Commission Statistics Division, Ministry o f Planning Strengthening H e a l t h a n d Population for the Less Advantaged (DffD-assisted project) Strengthening the Auditor General’s O f f i c e (UNDP-assisted project) Telegraph a n d Telephone Transparency International Taka Upazila Accounts Officer U n i t e d Nations Commission on Trade a n d Development U n i t e d Nations Development Programme Water a n d Sewerage Authority

Notes

1. 2. 3.

At January 6,2002, Tk 58 = US$1. References to “he”, “him”, “chairman”, etc. are intended to include either gender. L a k h taka = Tk 100,000. Crore taka = Tk 10,000,000.

1 x

a n international or ‘best practice’ standard, and also the standards a n d practices o f the external ‘oversight’ agencies - nine Audt Directorates of the Comptroller a n d Audtor General’s O f f i c e (CBAG), parliamentary committees concemed with public expenditure, donor agencies, a n d the media. I t assesses w h a t i t would take to qualify the country for programmatic or sector lending in replacement o f all individual project lenclmg. With respect to private funds in the hands o f companies, commercial banks, insurance companies a n d non-govemment organizations, i t examines the regulatory activities o f the Registrar of Joint Stock Companies, the Securities a n d Exchange Commission, the two Stock Exchanges, Bangladesh Bank, NGO Affairs Bureau and the accounting a n d a u d t i n g profession that serves both public and private sectors.

T h i s document assesses the quality of financial accountabdtty and transparency in Bangladesh a n d makes recommendations for improvement. With respect to pzlblic funds, i t compares the financial management standards and practices of agencies using such funds against

classification system was introduced in 1998: h s i s m a k i n g budgets a n d accounts m o r e useful, particularly for economic analysis. Monthly and annual accounts have been brought m u c h m o r e up to date, a n d a p r o g r a m i s under way to complete the computerization of accounts down to the district level. This will enable public officers to check the integrity o f their accounts against the statements of Bangladesh Bank. These are encouraging achievements. Nevertheless, these gains have been offset by a deteriorating control climate.

risk management in the public sector of Bangladesh. Public accounts a n d audit reports are being sent to Parliament each year and the delay has been substantially reduced. A n e w budgetary

In recent years, there have been significant improvements in some aspects o f fiduciary

Currently, fiduciary risk in public spending i s assessed as high and would require significant i m p r o v e m e n t in the public sector financial management before programmatic lending i s considered by the donors in the relevant sectors. This i s based on answers to standard World B a n k a n d UNDP questionnaires covering: the control environment; planning, budgeting a n d legitimization o f public expendture; procurement; payroll; disbursements; accounting; external reporting; internal audit; external audit and follow up; a n d the accounting infrastructure. Interviews, five local consultancy studies and four one-day workshops supplemented the questionnaires. For each m a j o r identified risk, recommendations were developed for consideration by the responsible agency. Recommendations were also developed on local government, public enterprises and parliamentary oversight. T h e y are highlighted at the e n d o f each section. Some recommendations have been endorsed at workshops and at a n Intemational Conference on Improving Oversight Functions: Challenges in the N e w M d l e n n i u m (Dhaka, September 10-12, 2000) organized by the C&AG’s Office. Several recommendations are p r e h i n a r y a n d directional only, a n d need m o r e specific development. W h i l e i t i s up to the national authorities to examine the b r o a d spectrum o f recommendations, weigh benefits against costs, a n d develop a financial management improvement program, our analysis suggests that the most serious areas o f weakness a n d the corresponding recommendations are as listed a n d roughly prioritized below.

Public Sector Control Environment
T h e internal c o n t r o l climate i s poor, as p o i n t e d out by the C&AG repeatedly in his reports. Internal controls are the checks and balances in the day-to-day procedures -

procurement, payroll, accounting, reporting a n d internal audlt in each government agency. T h e Secretary, as Principal Accounting Officer, needs to ensure, with the support o f the C h i e f A c c o u n t i n g O f f i c e r and Internal Audlt Officer, that procedures are clearly l a i d down, that officers are trained in them, that records are properly managed a n d that officers are supervised a n d corrected where necessary. Where this i s low on the scale of executive priorities, frauds a n d errors multiply like a virus. W e there i s a lot o f emphasis on the improvement o f audlt, relatively little attention i s paid to improving the material audited. A zero-defect philosophy i s needed. Initially, a survey o f the state of internal control i s suggested. This should define baseline levels o f internal control and major gaps and lead to a program to strengthen i n t e m a l controls a n d visibly enforce the l a w at all levels. Records management needs to b e recognized as a special responsibfity in each agency, a n d officers trained a n d motivated to upgrade records management practices. Procurement should b e separated from receiving, storing and accounting functions.

A public sector e t h c s code a n d disclosure of assets rules exist, but are not enforced. Allegations against politicians are rarely if ever independently investigated. Public servants can enrich themselves at public expense with impunity. Pay levels are very low a n d p r o v i d e a convenient justification. Public servants a n d Members o f Parliament should adopt a rigid code o f conduct, make public statements of assets and liabilities on t a h n g up office, a n d b e given orientation in the framework o f public accountability. N o one should b e above the law.
I t i s unlikely that the Government on i t s own would b e able to raise levels o f accountabihty a n d transparency for public funds. A public forum i s proposed in w h i c h oversight agencies, representatives o f civil society a n d other stakeholders c o u l d meet together regularly a n d review efforts a n d strateges to build accountability, transparency a n d the rule of law.

An independent National Accountability and Anti Corruption Commission may b e constituted involving members o f civil society having hgh level of integrity. T h e Members of the commission may b e appointed for a fixed term of five years. Once the Government appoint the members o f the commission, they can not be removed unless there i s any specific case of abuse of power or corruption which must b e proved by a three Member Judicial Committee. T h e Members o f the Judicial Committee may be the rank and status of a DisttJctJudge. .

Procurement and Assets Management
T h e Country Procurement Assessment Report' has highlighted the lack o f any legal framework, general procurement standards or central authority for public procurement. T h e result has been widespread misprocurement. Public procurement regulations should b e introduced as a f i r s t step, and a Department for Public Procurement or Procurement Policy Unit established to take responsibhty for procurement standards throughout the public sector. Procurement personnel a n d evaluation committee members need training a n d institutional development.

I World Bank

1999a.

consultants are subject to guidelines that follow international standards. In fact, there are m a n y variations in biddmg and contract documents, a lack o f transparency in the process and long delays in awarding contracts, resulting in higher costs, delayed benefits, nonparticipation o f good firms a n d increased scope for corruption. T h e Government finds i t difficult, acting alone, to enforce i t s regulations. Donors m a y assist by setting time l i m i t s for award of contracts, after w h i c h misprocurement would b e declared and funds would lapse. T h e World B a n k has set a standard of eight weeks after the original bid validity period and this has h a d a positive impact. n Transparency would b e i m p r o v e d by publishing i the press all awards over a certain threshold value. Creation o f a n appellate authority i s recommended and an O m b u d s m a n to look into complaints o f fraud a n d corruption.

About 30% of public expenditure, and up to 80% of foreign-assisted p u b l i c expenditure, goes through the procurement process. On paper, contracts for works a n d services, supplies a n d

As in other countries that use a cash-based system o f accounting, there i s a lack of accountability for government assets other than cash. Asset registers are not b e i n g maintained (except in some donor-assisted projects). This facihtates losses o f stores a n d supplies, a n d losses a n d misuse o f equipment a n d vehicles. Proper maintenance o f asset registers a n d periodic independent physical inspections c o u l d prevent this.

Internal Audit
I n t e r n a l audit i s nowadays regarded as the f i r s t tool of the chief executive officer to ensure effective a n d efficient operations, reliable reports, compliance with all laws, a n d the safeguarding of assets. Internal audit should b e o w n e d by a n d r e p o r t directly to the head o f each agency.

In Bangladesh government agencies, internal audit i s at a n early stage. Units exist only in large ministries a n d m a j o r autonomous bodies a n d do mainly a pre-audit o f transactions. Staff are d r a w n from line accounting functions, so they are not independent. Performance audits are unknown. There i s no central direction or oversight of internal audit standards. T h e executive management have no technical advice on risk management a n d control. There i s little cooperation between internal a n d external audit. Both are less effective as a result. T h e upgradmg of internal audit needs to b e planned in conjunction with the strengthening o f internal c o n t r o l (see above).

Parliamentary Oversight
T h e development o f parliamentary surveillance i s one o f the m a i n indicators o f progress in a nascent democracy. Considerable progress has been made in the b r i e f p e r i o d since parliamentary democracy was restored in 1991. T h e principal tools o f survedlance with regard to accountabdity a n d transparency are the Public Accounts Committee, Public Estimates Committee, Public Undertakings Committee a n d 35 Standing Committees on individual ministries. These are dominated by members of the party in power. I t i s difficult for back-bench Members o f Parliament to exercise any independent voice as they depend on party favor for appointment to G o v e r n m e n t office. T h e constructively critical r o l e of the opposition i s not

properly understood. Appointments to these Committees, especially the three financial committees, should reflect the need for a b r o a d spectrum o f views. In m a n y countries, the chairman of the Public Accounts Committee i s a n opposition Mp with good experience in financial administration. T h e highest importance i s attached to the provision o f technical staff a n d faclllties for research and follow-up on Committee recommendations.

T h e work of the Committees i s largely unknown a n d unnoticed. T h e y are not properly accountable to the H o u s e a n d to the public. Public Accounts Committee meetings should b e open to t h e media a n d the public, and all committees should submit annual performance reports to the Speaker.

Public Sector Accountants and Auditors
T h e r e i s a gross imbalance in the distribution o f professional Bangladeshi accountants.

Only 2% (some 20 chartered a n d management accountants) work in the public sector a n d 98% in the private sector. This reflects the very l i m i t e d role, low status and low pay o f government accountants a n d auditors compared with their counterparts in the private sector.
T h e r e are only 20 Chief Accounting Officers for 35 ministries a n d divisions. M a n y ministries do not have a full-time chief finance officer. Additional CAOs should b e appointed s o that each CAO can give undivided attention to his/her agency. Training i s not l i n k e d with the personnel policies set a n d admmistered by the M i n i s t r y of Establishment. Personnel are transferred out o f the posts for w h i c h they have been trained into posts for w h i c h they have not been trained. This 'system l o s s ' contributes to poor quality financial management in the p u b l i c sector. T h e r e has not been any evaluation o f the impact o f training programs o f the last f e w years. Nor has there been any assessment of the needs in the financial management area on w h i c h training should b e based. I t i s recommended that the Finance Division a n d the M i n i s t r y o f Establishment evaluate past training, survey financial management training needs in the p u b l i c sector, link training with promotion, placement a n d transfer policies, a n d expand the Financial Management Academy program accordingly.

External Audit
T h e Comptroller a n d Auditor General i s a l y n c h

pin in the system o f public

accountability to Parliament. H e has constitutional independence, a n d the appropriation for h i s audit directorates i s not subject to parliamentary vote. However, h i s budget i s subject to agreement by the Mnistry o f Finance a n d requires adherence to all the administrative circulars a n d instructions o f the M i n i s t r y o f Finance a n d the M i n i s t r y of Establishment, two o f his auditees. H i s r e p o r t goes f i r s t to the P r i m e Minister's Office, another auditee. Effectively, h e i s treated as a p a r t o f the executive rather than a n independent servant o f Parliament. A u d i t e d accounts should b e submitted h e c t l y to the President, with simultaneous copies to Parliament a n d the P r i m e m i s t e r ' s Office.

H i s audit staff are d r a w n from the same cadre as the accountants. There i s a perception o f lack o f audit independence. Trained auditors can b e transferred back into accounting posts.

d!'XfWPtP'& c 3 k I l n

z q "

To i m p r o v e the financial accountability in Bangladesh, GOB should take immediate steps to separate the functions o f accounting a n d auditing. T h e CGA should b e given entire responsibhty for the accounting function o f GOBincluding controlling all accounting staff. A c c o u n t i n g a n d audit cadres should also b e separated as in other countries of the region. Parliament has no say in the choice o f Audltor General. T h e Public Accounts Committee i s the m a i n user o f the C&AG's services but i s nowhere involved in the nomination process. A C&AG should b e
appointed as a n officer o f Parliament for a fixed t e r m of at least five years on the recommendation of the Prime Minister and the Public Accounts Committee.

T h e above are the most fundamental recommendations in this report. I t i s based on the n e w role o f the Auditor General in a democracy, that is, as a servant o f Parliament rather t h a n o f a military regime. Moving his audlt functions out o f the Executive to a n e w agency, dtrectly responsible to Parliament, would have a profound impact on the evolution o f democracy in Bangladesh.

There i s a p r o b l e m o f transparency. Audit reports on G o v e m m e n t bodies are not reported to the public (though they are o f t e n leaked to the press). T h e C&AG's annual departmental reports are issued very m u c h later. O n e way o f informing the public o f his findings would b e to open meetings o f the Public Accounts Committee (which receives the C&AG's reports) to the media. H i s reports would then become public documents.

T h e C&AG's own accounts are not independently audited. This opens the C&AG to allegations, w h i c h reduce public confidence. An independent a n d expert body should audit the C&AG's accounts.

M a j o r areas of public activity are not audited for lack o f staff or expertise. Public audit covers only 16-25'/0 o f the C&AG mandate each year. Public revenues are not audlted at all. T h e C&AG has 22,000 auditable units. To complete the audlt of t h i s huge portfolio with 3,500 audit staff, most o f who are junior staff, i s a monumental task. T h e C&AG a n d the G o v e r n m e n t m a y consider using the private auditors on a n experimental basis. Initially, t h i s work m a y b e started with the audit of local Government institutions (City Corporations a n d Municipalities) a n d foreign-aided projects. However, the C & A G should b e allowed adequate resources to cover the cost o f such audits from LGI a n d project resources. I f this i s agreed in principle, this should b e done by very carefully selected short-listed private audit f i r m s . This approach would facibtate m o r e interaction between private and public sector audltors a n d accountants a n d allow t h e m to learn from each other. I t would also help to allocate the manpower resources o f C&AG to other priority areas o f audit a n d increase the annual coverage o f audit.

Public audit standards based on international standards have recently been published but massive training i s needed to apply them. T h e Audit D e p a r t m e n t needs a strategic p l a n that addresses these issues of coverage s o as to m i n i m i z e fiduciary risk with the available resources. Training, personnel a n d transfer policies c o u l d then b e based on the plan.

Public Enterprises
p u b l i c enterprises are responsible for about 40 per cent o f all public spending. T h e i r performance has been unsatisfactory at least since 1982. Though their financial performance i s considerably dictated by political pricing and output decisions, b e h i n d these there i s widespread mismanagement, politicized labor relations and corruption. Wages a n d salaries have been increasing faster than productivity in public enterprises in all sectors. A p a r t from privatization, w h i c h has been dragging slowly, performance can b e i m p r o v e d by injecting top-level business experience into the boards. All top appointments should b e made on criteria o f business experience a n d track record.

In the last f e w years, performance 'contracts' between the h h i s t r y o f Finance (Monitoring Cell) a n d some o f the larger corporations have been reinforced by a R e w a r d and Punishment Scheme that has added sanctions to the achievement or non-achievement o f targets. This has p r o v e d that i t i s possible for delinquent officers to b e suspended or even fired. T h e scheme appears to b e having a good effect. I t should b e gradually extended to all public enterprises continuing under Government ownership.

Nationalized commercial banks s t i l l have enormous unrecognized losses on their l o a n portfolios. T h e i r financial statements and audit gloss over these harsh realities. There i s a high risk o f dhquidity a n d need for Government bad-out. Bangladesh A c c o u n t i n g Standard 30 (which i s the same as the international standard in all material respects) should b e enforced as the accounting standard for bank financial statements. T h e selection o f auditors, their terms o f reference a n d follow-up o f audit reports should b e tightened.

Cash and D e b t Management
D o n o r s have preferred to open special accounts in commercial banks to hold aid

funds ready for use in aided projects. These are not within the G o v e r n m e n t accounting system: accounting i s dependent on reports by project directors. Some foreign aid i s o m i t t e d from the G o v e r n m e n t consolidated accounts. But these are public funds from the time the donors disburse them. T h e Bangladesh B a n k and C 8 A G O f f i c e need to work out how they can b e brought within the public accounts a n d how balances can b e p o o l e d to m i n i m i z e government borrowing without prejudice to project autonomy and flexibhty.
T h e number o f bank accounts holding public funds i s unknown. There i s a w i d e distribution of check books on these accounts. A review i s needed o f the n u m b e r a n d distribution of b a n k accounts and check books with the aim o f reducing the risk of dlegtimate spending.

There i s no l a w limiting borrowing, nor i s there transparent accounting or audit o f public debt, contingent liablltties on guarantees, etc. This i s a loophole in the system of parliamentary accountabhty for finance, as ministries can give government guarantees in substitution for present expenditure. All public debt a n d contingent liabilities should b e reported

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as a n annex to the Finance Accounts, and included in the scope o f C&AG audit a n d parliamentary review, in accordance with international standards.

External Reporting
T h e financial statements o f the central government do not meet international standards o f disclosure. T h e public cannot see w h a t has happened to their resources; the cycle o f financial accountability i s not closed. Financial statements should b e prepared accordmg to IFAC standards (or draft standards where final standards have not yet been issued) a n d published with the a u d t report.

E x t e r n a l reports do not provide i n f o r m a t i o n useful in evaluating service costs, efficiency a n d accomplishments. F e w departments report on their performance as required by the Government's Rules o f Business. There i s a lack o f performance accountability - providers o f funds cannot assess whether they have been used efficiently or effectively. All public bodies should publish annual reports on performance program-wise.

Reforms in Public Sector Financial Management
T h e r e should b e political will for major reforms in public sector financial management.

To bring significant improvements, steps need to b e taken to increase the professional s k d s o f the h u m a n infrastructure in the ministries in respect o f budgeting, accounting a n d reporting. In addtion, steps are to b e taken to increase the use of technology and change the mind-set o f the staff through change management training and workshops to use financial management as a tool. (For m o r e d e t d s please see the World B a n k r e p o r t 'National Institutional Review', Chapter 2).
T h e RIBEC f a d y o f projects i s a success story in Bangladesh in bringmg improvements in public sector budgeting, accounting a n d reporting. These reforms have succeeded through consensus building a n d participation o f the stakeholders. G o v e r n m e n t m a y consider building on this success and taking steps for the sustainability o f t h i s reform. T h e financial management capacity in m a n y public organizations, like, Post Office, Telephone a n d Telegraph Board, Railway A u t h o r i t y and m a n y autonomous bodies i s very weak. Steps should b e taken to strengthen the financial management capacity o f these organizations.

Controlling public expenditures i s critical for macro-economic stabdtty a n d the economic development o f Bangladesh. A Public Expenditure Review Commission should b e setup to review the expenditures of the public sector. T h e M n i s t r y o f Finance should work on a short, m e d i u m and long-term strategic p l a n to modernize public sector financial management. T h e key institutional issues, w h i c h are hindering reforms, should also b e addressed.

1. Introduction

Context

T h e People's Republic o f Bangladesh i s a unitary democratic republic with a w r i t t e n constitution adopted in 1991. T h e Parliament consists o f a single chamber of 330 elected representatives who in turn elect a President, the head o f state. T h e majority party elects a leader who i s i n v i t e d by the President to form the government under h i s or her p r i m e ministership. T h e President appoints the Prime Minister and Chief Justice on h s own authority. All other executive acts are in accordance with the advice o f the P r i m e Minister, such as appointment o f Cabinet ministers. Constitutionally, the Cabinet i s collectively responsible to Parliament a n d the judiciary i s independent o f the executive branch o f govemment. In fact, the Prime Minister a n d h e r party have the balance o f p o w e r a n d Parliament and the judiciary are in a constant struggle to assert themselves against the centralized p o w e r o f the executive.

T h e constitution requires that all bills for the expenditure o f public m o n e y b e introduced in Parliament by the President. N o tax can b e levied and no expenditure of public m o n e y made except by A c t o f Parliament. All revenues, proceeds o f loans a n d l o a n repayments to the G o v e r n m e n t go into a Consolidated Fund. All other monies received by the G o v e r n m e n t go into a collection o f funds called the Public Account. There i s not at present any A c t regulating the use o f public money. T h e Constitution says that until there i s such a n Act, rules made by the President shall apply. T h e rules put internal financial control under the supervision o f the M i n i s t r y o f Finance. External c o n t r o l i s under a constitutionally independent Comptroller a n d Audtor General (C&AG) who audits all public sector accounts and submits annual a n d special reports to the President for transmission to the Public Accounts Committee o f Parliament. However, the C&AG a n d his department are adrmnistratively subject to the M i n i s t r y o f Finance a n d M i n i s t r y o f Establishment.

As in several other developing countries, corruption pervades all areas o f p u b l i c activity in the country. Administrative inefficiency and reluctance to simplify a n d s t r e a d n e procedures are said to b e due almost always to underlying corruption. Transparency International a n d the International Country Risk G u i d e rate most countries o f the world annually a n d publish corruption perception indices. In 1996, of the 56 countries surveyed, TI ranked Bangladesh as the fourth most c o r r u p t country in the world and ICRG ranked i t as the s i x t h most corrupt country.' T h e r e p o r t on Government Malpractices in the early 1990s confirms extensive c o r r u p t i o n in public procurement. Since then, the extent o f corruption has by all accounts increased a n d spread to all levels o f bureaucracy a n d politics. I t i s the universal v i e w that unless c o r r u p t i o n i s addressed, other reforms can have only a marginal impact.
Poverty i s the biggest challenge facing Bangladesh as i t enters the n e w millennium. There i s mounting evidence that poverty i s associated with poor governance, where government i s less accountable a n d responsive to citizens. Since the poor lack the resources to give bribes, they do not get equal access to government services.2 Conversely, improvements in governance are associated with higher per capita income, higher adult literacy, l o w e r i n f a n t mortality a n d reduced poverty.
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reference to education, health services a n d relief and food aid.

a n d ICRG websites. Bangladesh does not appear in the latest (2000) c o r r u p t i o n perception table. UNDP's 1996 R e p o r t on I l u m a n D e v e l o p m e n t in Bangladesh: A Pro-Poor Agenda, provides examples o f this with

Among donors there i s a s h i f t in thinking about the way that aid should b e provided. I t i s no longer considered sufficient to have tightly managed projects, because donor funds are fungible - assistance to these projects permits an increase in government spending elsewhere. T h e m o v e to a sector a n d programmatic approach and away from ‘ring-fenced’ projects has g v e n a n e w impetus to the call for transparent and accountable governance. Steps towards ‘good
governance’, with a strong emphasis on accountabhty a n d transparency, are becoming preconditions for aid from the m a j o r donors, multilateral a n d bilateral.

T h e Government i s currently undertaking a n u m b e r o f projects for improvement o f accountabihty in partnershp with other donors and NGOs. These include the RIBEC f a d y o f projects in the Ministry o f Finance, Comptroller and Auditor General’s O f f i c e a n d Financial Management Academy supported by UK-DFID; the Strengthening the O f f i c e o f the Audltor General project and Strengthening o f Parliamentary Democracy project, both supported by UNDP; projects o f Institutional Support for the Mnistry o f Finance a n d the Securities a n d Exchange Commission, supported by ADB; and a project to strengthen 14 municipalities a n d two city corporations, supported by the World Bank.

O t h e r initiatives are in the pipeline. T h e Public Administration R e f o r m Commission has made 137 recommendations,3 of w h i c h the G o v e r n m e n t has so far c o m m i t t e d itself to six. I n f o r m a l requests for support have been made to the World B a n k for: assisting in the implementation o f the recommendations o f the Public Administration R e f o r m Commission; follow through with the reforms in the N a t i o n a l B o a r d o f Revenue initiated under the Export Diversification Project (including a Customs Administration Modernization Program); computerization o f government payroll a n d pension systems; the elaboration o f a n informatics strategy; strengthening the analytical policy work o f the M i u s t r y of Finance; a n d preparation o f a n standard procedures manual to lay the base for internal controls i central government.

Purpose And Scope
T h e purpose o f the Bangladesh Country Financial Accountabllity Assessment (CFAA) i s

ineffectively, by comparing the financial management standards a n d practices o f agencies using (or regulating the use 09 funds against a n international or ‘best practice’ standard. T h i s i s dlvided into a n assessment o f the risk to public funds (public financial accountabhty) a n d the risk to private funds (corporate accountabhty). Assessment of r i s k requires an assessment o f the internal controls exercised by the executive on itself, a n d o f the external controls exercised by oversight (watchdog) agencies. For both internal a n d external controls, the risk depends on:
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to assess the risk that financial resources in Bangladesh m a y b e used dlegtimately, inefficiently or

How m u c h relevant infamation the c o n t r o l agencies can obtain about the use of funds. How w e l l they can anabxe the i n f o r m a t i o n a n d develop action-oriented conclusions.

W h a t hnd o f response they are able to elicit from the users o f funds. Responses are
deterrent (strengthening o f system, punishment o f delinquent officers) a n d corrective (recovery o f losses, correction o f accounts).

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2000.

Public Administration for 21st Century: Report o f the Public Administration Reform Commission, 3 volumes, June

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T h e assessment i s a present snapshot. I t looks objectively at the r i s k s as they exist now, rather than how far they have changed in the past or how far they are planned to change in the future. I t i s intended to enable the national authorities to see themselves in relation to best practices a n d to address their weaknesses through a p r o g r a m o f financial management improvement. This report identifies areas o f weakness and makes recommendations toward their correction as a f i r s t step in a nationally formulated r e f o r m program.

T h e p r i m a r y emphasis i s on legitimacy o f use of funds, as defined by legislation a n d by executive rules, regulations, codes a n d standards. Efficiency a n d effectiveness are also concerns, but secondary. I n other words, the assessment i s m o r e o f j n a n c i a l accountability t h a n pegomance accountabdity, though performance aspects are not ignored. N o attempt has been made to distinguish the risk o f illegitimacy from the risks o f inefficiency a n d ineffectiveness. Most weaknesses contribute to all three.

Structure of The Report
Chapter 2 provides a n overview o f the ‘architecture’ o f public accountabhty in Bangladesh - the m a i n players a n d the accountability cycle. Chapter 3 covers the central government ministries and divisions a n d their accounts including transactions at district a n d thana levels. I t i s sub-divided over the various executive phases a n d key components o f financial management. Chapter 4 deals with the elected local government bodies, w h i c h handle p u b l i c funds - city corporations, municipalities, union councils. Chapter 5 examines public enterprises, comprising the autonomous bodies supervised by the M u u s t r y o f Finance Monitoring Cell, the nationalized commercial banks, and the various departmental enterprises such as the Telegraph a n d Telephone B o a r d and Railway Authority. Chapter 6 examines the m a i n oversight bodies for p u b l i c funds - the nine audit duectorates o f the Comptroller and Auditor General’s office, the parliamentary committees concerned with financial accountability, donors, a n d the r o l e o f the press. Chapter 7 analyses the accounting a n d auditing personnel infrastructure in the p u b l i c sector and their training and disciphne. Chapter 8 moves to the private sector, a n d reviews the accountability o f private companies, commercial banks and other financial institutions, a n d nongovernment organizations. Chapter 9 covers the private accounting and auditing profession - i t s structure, standards, training a n d discipline. Chapter 10 indicates the next steps to b e taken. T h e recommendations are highlighted at the e n d o f each chapter.

2. T h e Architecture

of Public Accountability

A c c o u n t a b i l i t y in the Government of Bangladesh i s based on a system inherited from f o r m e r British (1757-1947) and Pakistani (1947-1971) administrations, amended to meet additional needs from time to time, a n d reaffirmed in the Constitution o f 1991 after 16 years of milltary rule. Articles 81-92 and 127-132 of the Constitution make Parliament the source o f all authority to raise revenues and make expenditures a n d define the role o f the President a n d the Comptroller a n d Auditor-General (C&AG) and the basic requirements for estimates, demands for grants, charged expenditures, annual Appropriation Acts, supplementary estimates, votes on account a n d t h e regulation of public moneys. T h e functions o f the C&AG are further defined in the C&AG (Additional Functions) A c t o f 1974 and subsequent amendments (Md. M u s h Chowdhury 1999). These include the duty to keep the public accounts a n d prepare the government financial statements. Thus, the same person i s responsible for preparing the accounts a n d for auditing t h e m - a n obvious c o n f i c t of interest (see section 7.1 below).

T h e r e i s no general l a w or statute setting out the responsibilities for financial management. Detailed rules have been issued - General Financial Rules, Treasury Rules, etc. - as executive orders o f the President. These Rules define the responsibhties o f the Finance Division o f the M i n i s t r y o f Finance, Secretaries o f Ministries a n d Divisions (who as Principal A c c o u n t i n g Officers are answerable for their respective ministries or divisions’), heads o f departments, Controller General o f Accounts, C h i e f Accounts Officers, Accounts Officers, D r a w i n g Officers, a n d public officers generally. Expenditures are subject to pre-audit by C h i e f Accounts Officers (CAO). I f there i s any irregularity, the CAO makes the payment but h e can raise a n objection a n d inform the Controller General of Accounts (CGA).

Consolidated Fzrnd, w h i c h shows receipts and payments o f government m o n e y as authorized by the Constitution a n d each year’s Appropriation Act, a n d the Pzrblic Accotmt, a group o f funds that receive a n d pay ‘other money’. These are published annually together with a supporting
statement o f actual expenditures compared with budget authorizations, explanations of variances (the Appropriation Accounts). variances and

T h e central government financial statements (Finance Accounts) are in two parts

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the

T h e budget a n d accounts for the Consolidated Fund are divided between ‘development’ a n d ‘revenue’. Broadly, the Development Budget contains all those expenditures that are supported, wholly or partially, by foreign aid/loans. These include capital construction, incremental operating and maintenance expenditures, a n d technical assistance. T h e Revenue Budget contains government revenues from taxes, aid a n d loans, recurrent expenditures insofar as they are not in the Development Budget (typically the staff costs), interest on development loans a n d some ‘non-developmental’ capital expenditures such as admmistrative buildings.

T h e level o f accountabhty in a country depends on internal controls within the executive branch a n d external controls exercised by oversight (watchdog) agencies. I n t e r n a l executive controls in Bangladesh are exercised principally by the Finance Division, w h i c h i s primarily responsible for maintaining financial d i s c i p h e throughout the public sector, a n d Internal Audt Cells, w h i c h exist in about a dozen large ministries a n d in all the sector corporations.

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to whom he i s accountable. There i s no m e n t i o n o f Parliament.

Rules o f Business (1996) Ch.1, section 4 (vi) says that the Secretary i s Principal Accounting Officer, but does not say

T h e oversight agencies are the C&AG (nine Audit Directorates), the parliamentary committees concerned with public expenditure (three financial committees a n d 35 standing committees on ministries), a n d the Anti-Corruption Bureau. T h e Constitution provides for a n Ombudsman, a n d the current government made a n election pledge to appoint one, but no one has ever been appointed to t h i s office. T h e C&AG i s the f i r s t line oversight agency, examining all p u b l i c accounts (though in practice h e examines only 17-25 percent o f all auditable u n i t s each year - see section 7.1), while the others are selective investigatory agencies.

T h e most important i s the Public Accounts Committee, w h i c h bases i t s inquiries entirely on the reports o f the C&AG. These agencies and their lines of communication are shown in Exhibit 1.

To these m a y b e added the monitoring a n d evaluation activities of development partners, w h i c h apply particularly to the projects they assist and various NGOs in civil society a n d the media insofar as they concern themselves with public expenditure.
There i s little 'horizontal' accountability to beneficiaries o f government services, except in some projects in w h i c h community-based organizations participate with g o v e m m e n t agencies in monitoring outputs and outcomes. Almost all accountabhty lines are up the hierarchical chain through project directors, h e directors, department heads, secretaries a n d ministers to the elected representatives of the people in Parliament. In the elected local government institutions, there i s vertical accountabhty both to elected local councils a n d vertically to the central government through the M i n i s t r y o f L o c a l Govemment.

Public funds are used by central govemment ministries/divisions, departments of the departmentalized ministries (including Telegraph & Telephone, Postal, Railway, Defense, Forest), local government institutions (city corporations, municipalities a n d union councils), a n d p u b l i c enterprises (sector corporations a n d their subsidiary enterprises, nationalized commercial banks and development finance institutions).

Bangladesh 'general government' includes about 60 nonprofit institutions controlled a n d largely funded by the central government, such as the universities. For lack o f time, these were not included in the assessment. T h e Anti-Corruption Bureau i s not believed to b e effective a n d was also omitted. Individuals, partnerships, companies (financial a n d non-financial) a n d nongovernment institutions use private funds. Individuals and partnerships were not examined, nor NGOs in any detail. T h e omissions are not expected to have any significant i m p a c t on the report's conclusions a n d recommendations.

Figure 1 T h e Architecture of Public Accountability

Ministry of Planning

Ministry of Finance
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Finance Division
Dev't
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Accounts and Audit Reports

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Finance Accounts

Government Ministries and Divisions

3. Central

The Control Environment
F o r some time the C&AG has been saying that there i s practically no internal control
system in the ministries, a n d that t h i s i s one of the main reasons for the staggering n u m b e r o f audit observations. H e observes that if structured internal control systems were set up, the audlt personnel c o u l d do less compliance auditing and m o r e performance auditing.1

Intemal control i s nowadays defined as synonymous with management c o n t r o l viz. a l l the methods and measures effected by an entity's management and other personnel to provide reasonable assurance regarding the achevement o f objectives in the following categories:

effectiveness and efficiency o f operations. reliability o f financial and operational reporting. compliance with applicable law and regulations. safeguarding resources against losses due to waste, abuse, mismanagement, errors, fraud and other irregularities.

General Finand Regulations, Treasury Regulations, Account Code and Audit Code were reissued recently (RIBEC 1996, M m i s t r y o f Finance 1998a, 199813) but not revised or rationalized. All these, together with the Fundamental and Supplementary Rules, the PWD Account Code, the T&T Manual, the Postal Manual, and Forest M n a are outdated and need to be overhauled. Particular aul procedures need to b e rewritten, such as dlsbursement of pensions.

Accountabihty starts with every officer b e i n g trained in the Regulations, a n d having ready access to a n updated copy. A Rules a n d Regulations Unit has been set up in the M i n i s t r y o f Finance, in coordination with a similar unit in the C&AG Office, w h i c h will ensure dissemination o f regulations. I t i s then the responsibility o f Secretaries, as Principal A c c o u n t i n g Officers, to ensure that officers and personnel are properly supervised a n d required to c o m p l y with regulations.

T h e M i n i s t r y o f Finance i s responsible for government-wide internal c o n t r o l policies a n d procedures, a n d Finance Division i s establishmg a Financial I n f o r m a t i o n Monitoring Unit, a Coordination Unit, a n d a n Inspection Wing. These are intended to analyze controls, make recommendations on improving controls, act as a change agent in implementation o f improvements, a n d develop in-house capacity to upgrade systems a n d procedures.2 Similar units will t h e n b e set up in selected ministries. At present, there i s no p l a n for the review a n d revision of internal controls according to recognized standards such as those of I N T O S A I or the Institute o f Internal Auditors. T h e C&AG has proposed a government survey o f internal c o n t r o l mechanisms, with a v i e w to expose their deficiencies a n d devise remedies. This would b e a useful f i r s t step, w h i c h should lead into a p r o g r a m to strengthen controls a n d visibly enforce them. Records management i s poor, as m a n y audlt observations relate to absence o f records.3
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Office of the Comptroller & Auditor General Performance Reports 1997:5,1998:6. I t i s not clear why three new units are needed for a single efficiency promotion function. PAC Third Report, p. 27.

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Accountability depends on adequate and accessible records. Good management also depends on orderly records: in fact, files go 'missing' and decisions are made on 'part' files. Records management needs to b e recognized as a special responsibility in each agency, and officers trained a n d motivated to upgrade records management practices.

Transparency implies that records are open a n d accessible to citiTens, since government activities are undertaken on their behalf. Currently, records are classified into Top Secret, Secret, Conjdential a n d Restrr;cted, and the O f f i c i a l Secrets A c t makes unauthorized disclosure a criminal offence. T h e w h o l e culture o f government in Bangladesh, as in m a n y other countries, i s one o f secrecy.4 A 180-degree cultural s h i f t i s required! Freedom-of-information legislation i s b e i n g introduced in m a n y countries, including India, a n d i s r e d e f h g the interface between government a n d civil society. Instead of defining w h a t can b e disclosed, or authorizing release o f i n f o r m a t i o n on a case-by-case basis, all information becomes publicly available on demand, without question, except for carefully defined exceptions. T h e technological revolution i s facilitating t h ~ s reform; as a f i r s t step, government agencies are putting key documents onto tailor-made websites. 'E-government' i s gathering pace. T h e m a j o r constraint i s the fear o f m a n y civil servants a n d politicians o f loss o f dlscretionary power enjoyed b e h i n d the screen o f secrecy.

Discretionary p o w e r may, o f course, b e used corruptly. In a recent sample survey o f class I n d I1 officers, w h e n they were asked to estimate how m u c h corrupt officials obtained a from bribes, the response was a sevenfold increase over the official salary.5

R o t a t i o n o f officers i s widespread but not regular or systematic. M a n y frauds are brought to light only w h e n the relevant officers are transferred. A m o r e systematic transfer policy in all posts having access to public funds should b e introduced.

Corrective action i s conceived almost entirely in terms of recovery of losses from delinquent officers. T h e strengthening of systems a n d the punishment o f offenders to prevent a n d deter recurrence o f irregularities are a poor second and third. C o n f i c t of interest rules exist but are not enforced. Similarly, the limit on the value of g i f t s that a public officer m a y receive i s not enforced. Fines can b e i m p o s e d by administrative action only on junior officers (classes I11 a n d rv). Senior public officers a n d parliamentarians are rarely punished. Cadre rivalry prevents action b e i n g taken by a m e m b e r o f one cadre against another. Political protection may hinder effective correction.

T h e requirements for dlsmissal o f civil servants are very cumbersome. Sometimes the process ends with reinstatement o f dismissed officials. T h e y apply equally to employees o f public enterprises.6 Nevertheless, a f e w public enterprises (Power Development Board, D h a k a Electricity Supply Authority a n d Petrobangla) have been brought within a Reward a n d Punishment Scheme sponsored by the M i n i s t r y o f Finance that has given bonus for a c h e v i n g pre-agreed targets, a n d either suspended or r e m o v e d personnel for culpable failure (see section 5.1 below).

T h e Public Administration R e f o r m Commission (2000) criticised this a n d proposed a draft F r e e d o m of I n f o r m a t i o n Bill, Vol.1, para. 2.05 a n d Enclosure 2.1. 5 World Bank, 2000g. 6 By a Supreme Court decision, public enterprise employees are also civil servants.
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T h e Prime Minister has required incoming Ministers to make declarations of their assets. These declarations are not made public, but could b e used as an internalcontrol. At the Conference on Oversight Functions, it was emphasized that control o f public expendlture starts with controls by Parliament on itself. A remuneration, institution of a rigid code o f conduct and public statements of assets and s by all M P s on election to office were recommended, together with orientation in the framework of public accountability, particularly on the opening of a n w Parliament. e T h e weaknesses in the control environment are serious deficiencies. Unless public officials' conduct rules and anti-corruption laws are seriously enforced, hnancial accountabhty assessment for Bangladesh will remain unfavorable.

Accountability i s more effective where the concerned agencies work together. A forum i s needed where oversight agencies, together with NGOs and civil society, could regularly review efforts to enhance accountability, transparency and the rule of law, propose n w strategies, share information e and jointly promote action.

T h e following recommendations are made:

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U n d e r t a k e a survey of i n t e r n a l controls, l e a d i n g to a p r o g r a m to strengthen a n d v i s i b l y enforce them. R e c o g n i z e records m a n a g e m e n t as a special responsibility in e a c h agency, t r a i n a n d m o t i v a t e officers t o i m p r o v e records m a n a g e m e n t practices, a n d recognize p u b l i c right o f access to records with d e f i n e d exceptions. I n s t i t u t e a rigid code o f c o n d u c t for p u b l i c servants a n d M P s a n d p u b l i c statements o f assets a n d liabilities on t a k i n g up office, together with o r i e n t a t i o n in t h e f r a m e w o r k o f p u b l i c accountability. E s t a b l i s h a p u b l i c f o r u m o f oversight agencies a n d c i v i l society organizations for t h e enhancement o f accountability, transparency a n d t h e r u l e o f law.

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M e m b e r s o f t h e c o m m i s s i o n b e a p p o i n t e d for a f i x e d t e r m o f five years. O n c e t h e m e m b e r s o f the c o m m i s s i o n are a p p o i n t e d by t h e Government, t h e y c a n not b e r e m o v e d unless there i s a n y specific case o f abuse of p o w e r or corruption, w h i c h m u s t b e p r o v e d by a three M e m b e r Judicial Committee. T h e M e m b e r s o f t h e Judicial C o m m i t t e e s h o u l d b e in t h e r a n k a n d status o f a D i s t r i c t Judge or A d d i t i o n a l D i s t r i c t Judge. P l a n n i n g And B u d g e t i n g

An i n d e p e n d e n t N a t i o n a l A c c o u n t a b i l i t y a n d Anti Corruption C o m m i s s i o n b e c o n s t i t u t e d involving m e m b e r s o f c i v i l society h a v i n g high l e v e l of integrity. T h e

(ADP). These are the forerunners o f an annual Development Budget. T h e annual Revenue Budget i s prepared separately. A n n u a l budgeting i s a bottom-up procedure, starting with the preparation o f Estimates by government agencies, mainly on a n incremental basis from the

T h e Government produces Five-Year Plans a n d a n A n n u a l Development Program

previous year's approved budget, and culminating in the presentation o f &e Budget in Parliament by the Finance Minister and i t s enactment (see RIBEC (1993) a n d the Country

Profile o f Financial Accountability (World B a n k 1998b). T h e budget cycle i s summarized in Figure 1.

T h e budget as a basis for legitimacy

From a fiduciary point of view, the budget establishes the Legithag o f expenditures. I f disbursements are within the authority provided by the approved budget a n d in c o n f o r m i t y with relevant financial a n d procurement regulations, donors a n d citizens are assured that their funds are going into legitimate publicly approved purposes. I f public funds can b e transferred a n d spent outside the budget, then they are away from public scrutiny. Public funds m a y flow into private pockets or b e used for purposes w h i c h stakeholders would not approve. I n Bangladesh, there are a t least two significant extra-budgetary funds: (1) T h e P r i m e Minister’s Relief Fund (PMRF), a n d (2) the Private Fund o f the Regiment (PFR). T h e accountability requirement on each o f these funds i s that i t produces a certificate at the end o f the year as to the amount spent.

Managerial efficiency
Budget management i s concerned with the value for m o n e y achieved with g v e n allocations. A m a j o r loss of resource efficiency arises from the organizational a n d procedural separation of sectoral programs into a ‘Revenue Budget’ a n d a ‘Development Budget’: as there i s no f o r m a l machinery at the budget scrutiny level to ensure that the operating a n d maintenance costs o f capital projects are estimated and included in the Revenue Budget from the date that they come to completion a n d are adopted by the Government. T h e Constitution requires that expenditure ‘on revenue account’ b e distinguished in the overall statement, but t h i s has been misinterpreted as expendture on projects a n d activities that are wholly funded by the Government, with no aid component. This contributes to the c o m m o n syndrome o f countries using s d a r dual budgeting systems: roads without maintenance, hospitals without doctors a n d schools without books.8

Ideally, the p r o b l e m would b e solved by means o f a medium-term rolling p l a n w h i c h would bring together, project by project, the respective capital a n d current expendtures, a n d m a t c h the total expenditure with the projected resources a n d current fiscal policies. However, a Committee on Reforms in Budgeting a n d Expenditure Control in 1990 did not r e c o m m e n d the integration o f planning a n d budgeting personnel and procedures, presumably because the m a j o r changes in m i n i s t r y functions a n d staffmg would then have been unacceptable. N o changes in m i n i s t r y responsibilities are envisaged. T h e RIBEC project i s aiming to develop links between the two budget processes through a M e d i u m - T e r m Budget Framework for the Revenue Budget, a n d by the use o f a c o m m o n project classification for the ADP a n d both budgets. I t wiU also b e necessary to establish a Joint Budget Committee at the center a n d Budget Committees a t the m i n i s t r y level, a n d to develop a networked process that will ensure that all budgets are continuously re-worked on changes in underlying assumptions, such as the timing o f project completion. T h e f f l s t steps have been taken in the M i n i s t r y of Finance a n d M i n i s t r y o f H e a l t h where the preparation o f estimates i s being computerized.
These terms are misnomers a n d should b e retired: m a n y recurrent expenditures in the Revenue B u d g e t generate high developmental returns. T h e r e is no qualitative difference between allocations for social sectors in Revenue and D e v e l o p m e n t budgets (Kibria 2000). Thus, the revenue/development split has no economic relevance; i t i s necessary to apply the same economic classification to each b u d g e t a n d consolidate t h e m for economic analyses. 8 T h i s issue was highlighted in the Public Expenditure Review: 1997 U p d a t e (World B a n k 1997a: para.10 a n d A n n e x IV). Premature recruitment a n d unnecessarily continued employment o f project personnel (ibid. para. 95) complicate it.
7

A related p r o b l e m i s the poor quality of planning a n d budgeting. Projects creep into the ADP a n d budget without due scrutiny: the quality and relevance o f projects in the ADP need improvement. Also there i s undue reliance on Revised Estimates prepared i the second h a l f o f n the financial year, w h i c h are used to legitimize excess expendtures a n d reallocate available funds

to preferred projects. Budgets are prepared mechanically from previous year data (incrementally) for lack o f strategic planning in ministries and divisions, a n d do not provide any data on the functions, objectives a n d activities o f organizational units, nor their planned progress, outputs a n d outcomes. Budget scrutiny i s similarly incremental. T h e present procedure does not allow agencies to re-orient their priorities from year to year. Personnel emoluments are usually protected, so cuts apply disproportionately to operations a n d maintenance expenditures such as travel a n d utilities, irrespective o f their particular impacts on growth, poverty, etc.

results. O n e o f the lessons learnt in several countries in the last h a l f century i s that such reforms cannot b e implemented in a single year (or even five years), nor across the board. Secondly, planning a n d budgeting i s the responsibility of line managers, not planning officers a n d budget officers. T h e latter are the secretariat only. Thirdly, a result orientation has to start at the top, i.e. with Ministers a n d Secretaries who are performance conscious a n d willing to experiment. In a f e w selected ministries or departments, the Secretaries c o u l d start building a m e d u m - t e r m rokng planning process involving all h e directors. T h e RIBEC project has proposed a Budget Committee in each ministry, headed by the Secretary. T h e Budget Committee c o u l d lead a n d coordinate the planning process. T h e budget would reflect the f L t s t year slice of the p l a n a n d would spell out the agreed functions, objectives, outputs, etc. This initiative needs to b e actively supported.

This input orientation needs to b e complemented by a n equal focus on outputs a n d

Aprerequisite would b e that the Ministry of Finance gives each m i n i s t r y a budget ceiltng (envelope) early enough in the budget cycle that i t s use c o u l d b e properly planned, a n d a n assurance that no cuts would b e made (except in great emergency). Without this, there i s no incentive for a Secretary to undertake detailed planning - that i s why they leave i t to junior officers. I t i s believed that earlier estimates o f resources are now possible as a result o f financial statements b e i n g brought up to date. T h e Resource Committee Technical Secretariat a n d the n e w Fiscal Analysis a n d Monitoring Unit could b e made responsible for h s . Donors couldpla3, an important role b_v supPoding stable sectoral budget envelopes provided thy have assurance that the refom momentum is maintained

wiU also b e necessary to strengthen Management A c c o u n t i n g Units a n d internal management i n f o r m a t i o n systems, subject to resource constraints. RIBEC has sub-projects building up management accounting a n d M I S support to Secretaries in agricultural services (ASIRP), education (ESTEEM) a n d health (SHAPLA). Training should b e given to senior line managers a n d their budget a n d accounts personnel, a n d Budget Officers in Finance Division, i f possible jointly. At a Workshop on Budgeting, Accounting, Reporting a n d I n t e r n a l Control on June 24, 2000, participants welcomed a 'corporate' approach to budgeting that would derive
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Transparency and participation
T h e planning a n d budgeting process has been criticized for lack o f transparency a n d lack o f consultation.9 Government agencies have insufficient i n f o r m a t i o n to maximize public welfare from their budgets. Parliamentary committees are practically lunited to review o f public expendlture after i t has been legislated. T h e Government's annual budget i s normally presented early in June for the fiscal year starting 1 July. This compares poorly with the OECD Fiscal Transparency Guidelines, w h i c h say that the budget should b e presented to the legislature three months ahead. On the present budget timetable, there i s inadequate parliamentary t i m e for scrutiny o f the budget before i t i s passed.

Recommendations in t h i s area are as follows:
0

M a k e all special public funds transparent and subject to external audit under appropriate arrangements for confidentiality. T h e Rules o f Business Committee of the Parliament should consider increasing the time allocated to the Parliamentarians for debate on the budget. Establish 'bridging' machinery to integrate the planning and budgeting process across finance and planning. Improve the quality o f planning/budgeting by decentralizing allocations within sectoral ceilings to ministries/divisions, and instituting strategic planning through Budget Committees.

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Donors to support stable sectoral budget envelopes.

Procurement And Assets Management
Public procurement i s estimated at Tk 150 bilhon a year, o f w h i c h Tk 100 bdhon i s externally funded, mostly for the public corporations. A c c o r d i n g to a recent detailed assessment,lo the perception o f practically all observers from the Government, p u b l i c sector corporations, business community a n d donor agency personnel i s that delays and c o r r u p t i o n are endemic a n d exist at all levels. According to a n IMED study covering 148 cases in FY 1998, the average time from inviting bids to awarding a contract was 14 months, resulting in higher costs, delayed benefits, nonparticipation o f good fems, and increased scope for corruption. Decisions have to go through a n Assistant Secretary, D e p u t y Secretary, Joint Secretary, A d d l t i o n a l Secretary a n d Secretary and, if they are over Tk 250 million, to a Cabinet Committee for Purchase. E v e n in public corporations, w h i c h are nominally autonomous, contracts over Tk 50-100 million have to get M i n i s t r y approval. Donors should set time h u t s for the award o f contracts, after w h i c h misprocurement would b e declared a n d funds would lapse.

There i s no legal framework for procurement, nor any central agency laying down procurement policy or supervising procurement standards. T h e Implementation, Monitoring a n d Evaluation Division o f the M i n i s t r y o f Planning created a Procurement Monitoring C e l l in 1994 but this consists o f a single officer. T h e Ministry o f Finance issued General Financial Rules in 1998, w h i c h outline general principles applicable to the purchase o f stores a n d construction o f public works, but leave detailed procedures to the individual agency. ERD has issued a set of
See, for instance, World Bank (2000d). Country Procurement Assessment Report (World Bank 1999a).

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10

Guidelines applicable to all externally funded procurement. E a c h agency tends to follow these Guidelines in i t s own procedure manuals for both international a n d local procurement, but no standard documents are used for goods, works and consultant contracts, nor standard purchase orders for shopping. T h e M i n i s t r y o f Roads and Highways i s drafting a n e w contract document for works. A single set o f documents should b e made standard for all p u b l i c agencies.

On paper, about 80 percent o f procurement i s subject to competitive biddmg, but in practice implementation i s “far from satisfactory”. Private sector representatives note that it i s virtually impossible to win a contract without paying bribes, a n d kickbacks between 10 a n d 15 percent are said to b e the norm. Examples abound o f contracts b e i n g steered to favored individuals a n d firms by: giving insufficient time for others to prepare their bids; bids received a n d opened a t m o r e than one location; evaluation criteria not stated or, if stated, rarely followed; collusion amongst bidders then award o f contract by lottery; physical b l o c k i n g o f delivery o f bids by ‘outsiders’, etc. Recently, some Parliamentary Committees have been probing individual contracts, e.g. the Committee on Estimates has required various G o v e m m e n t organizations to supply documentation on all contracts above given thresholds, in some cases scrutinizing invitations, bids a n d evaluation procedures befDre contracts were gwen, i.e. a pre-audit. This has uncovered some m a j o r irregularities and has probably h a d some deterrent effect but m a y constitute interference or obstruction in the operations o f government: i t risks dlluting executive accountability. L a c k o f transparency in the procurement process results in misprocurement. T h e G o v e r n m e n t should publish in the press all awards over a certain threshold.
T h e r e i s a general lack o f procurement knowledge a n d skius, especially at the working level. Evaluation committee members are not chosen for their technical competence. W h e r e rules are followed, they t e n d to b e followed blindly without regard to getting value for money. Proper records are not kept. A separate training program should b e run for personnel having procurement responsibkties a n d a procurement audit specialization established in the C&AG Department.

There i s no independent appeals machinery. Allegations a n d complaints delay awards. Creation of a n appellate authority i s recommended a n d a n O m b u d s m a n to look into complaints o f fraud a n d corruption.

Procurement i s not segregated from the receiving/storing a n d accounting functions. There i s little skilled stores management. Registers o f D e a d Stock11 a n d the duty on office heads to inspect a n d certify dead stock twice a year have fallen into disuse. Asset registers are not maintained by most government agencies for vehicles and movable equipment, except in some aided projects. Assets are not periodically physically inspected a n d compared with registers to verify their safe custody, condition and use. Some departments do not c o m p l y with the r u l e that, on completion of development projects, vehicles have to b e returned to the central transport pool. An initial survey i s needed to establish w h a t assets are h e l d a n d where, who owns t h e m a n d who i s accountable for them, and a pilot study undertaken in one or two selected agencies to value the assets a n d set up a continuing system of control. This will tighten internal c o n t r o l on government property a n d also facktate calculation of allocations for operating a n d maintenance.

1% Dead

stock i s i n v e n t o r y o t h e r than livestock.

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Recommendations therefore cover every aspect of procurement a n d materials management. T h e y repeat the recommendations o f the Country Procurement Assessment Report:

Donors to set time limits for award of contracts, after which time the funds lapse. Pending legislation, prepare and issue Public Procurement Regulations. Establish a central unit responsible for procurement policy. Prepare a standard set o f bidding and contract documents for all public bodies.

Publishin the press all contract awards over Tkl million.
program for the public and private sector and training for external and internal auditors in procurement audit.
Establish an appeal mechanism. Give effect to the Ombudsman Law. Asset survey and pilot study on setting up asset control in selected agencies. Accounting
T h e standards for central government accounting are contained in the Accounts C o d e (originally four volumes of detailed instructions for accounting a n d reporting dating from 1938 a n d supplemented by a mass of circulars), the General Financial Rules, Treasury Rules a n d subsidiary rules made there under. T h e RIBEC project has consolidated all these, deleting those that were obsolete, a n d published a comprehensive n e w edition P B E C 1996, M i n i s t r y o f Finance 1998a, 199813). N o revision, rationalization or simplification was made, however. T h e revision o f codes a n d manuals needs to go beyond routine consolidation a n d should instead result in a n overhaul o f the inherited procedures a n d pave the way for m o d e r n fiscal systems. This i s planned for later. A Rules a n d Regulations Unit has been set up in the C&AG office, a n d a counterpart unit in the Finance Division, w h i c h will b e responsible for the maintenance, development a n d dissemination o f government accounting standards.

Design and implement a procurement and materials management training

Monthly accounts have been brought m o r e or less up to date by the RIBEC project. T h e y are sent to the Finance Division within 6-7 weeks of the month end.
I t i s claimed that the quality o f accounts has also improved, but this i s m o r e difficult to measure. All transactions in the D h a k a area (accounted for by 20 CAOs a n d the D h a k a DAO) are computerized, but transactions at the 64 D i s t r i c t Accounts Offices a n d 400 Thana Accounts Offices on behalf o f all the ministries and d i v i s i o n s w h i c h operate country-wide are s t i l l recorded manually. From these levels they are summarized manually by 20 Regional Accounts Offices (RAOs) a n d f e d into the CGA's Central D a t a Processing Unit w h c h prepares consolidated accounts. Six RAOs have been upgraded. N o t all offices are using the n e w classification, s o CAO offices have to convert their statements before they can b e consolidated. T h e accounts o f Defense, Railway Authority, Telegraph a n d Telephone Board, a n d Postal D e p a r t m e n t are also handled manually a n d f e d into the CGA consolidated accounts. Defense accounts have now been converted to the n e w classification.

A m a j o r p r o b l e m i s the omission o f considerable foreign-aided expenditure from the consolidated monthly accounts. A c c o r d i n g to a RIBEC study (1999e), a large proportion o f foreign a i d fails to b e recorded as development expenditure a n d simultaneously as a i d receipts. This i s mainly due to ( ) iexpenditure from special accounts (which are outside the government i) h accounting system) not being notified by Project Directors to CAOs a n d the CGA, a n d ( i e c t project aid (payments made by donor agencies directly to contractors, consultants, etc) not being brought to account, or only after a long delay. Donor statements do not always d i s t i n g u i s h loans from grants, direct project aid from reimbursable project aid, or even the projects for w h i c h disbursements have been made. I t i s expected that the Management Accounting U n i t s being set up in the ministries wdl ensure m o r e complete reporting o f aid expenditures. Donors should support this by providing regular a n d timely reports o f disbursements in accordance with the G o v e r n m e n t classification.
T h e accuracy o f the government accounts i s in doubt. There are m a j o r unexplained differences between the bank balance shown in the Government's balance sheet a n d the balance shown in the scrolls (bank statements) of the Bangladesh Bank. According to a RIBEC study (~OOOC), the B a n k shows less than the Government cash book by a n a m o u n t generally in Tk billions. O n e would expect the B a n k to have a larger balance due to checks outstanding,'2 so the unexplained difference i s even greater. E v e n if the difference narrows, i t c o u l d s t d l include m a j o r losses a n d irregularities, as there m a y b e offsetting errors or fraudulent entries in both sets of accounts - Government a n d Bangladesh Bank. Only ngglar month4 reconciliations can remove this isk. T h e number o f transactions i s now so high that reconciliation c o u l d only b e done by a computerized matching o f checks d r a w n a n d checks encashed, together with appropriate training a n d motivation. T h e RIBEC project has established a Central ReconcAation Unit i the CGA's n office but progress i s necessarily slow as personnel have to b e reassured at every step that their interests will not b e prejudiced. T h e p r o g r a m of computerization needs to b e extended down a t least to the larger district accounts offices. Four DAOs have been computerized so far. T h e Bangladesh B a n k a n d Sonali B a n k accounting systems also need to b e computerized. T h e Bangladesh B a n k check payment clearing system a n d check receipts have been almost completely computerized. T h e computerization of cash receipts also will assist the process of reconciliation by providing data in electronic form on amounts received directly by the Bank.

T h e former system of c o m m i t m e n t accounting, whereby every purchase order, work order, contract, etc was recorded as a m e m o r a n d u m record at the time of commitment, has fallen into disuse. T u weakens expenditure c o n t r o l a n d cash management, as the v o l u m e o f hs commitments in the pipeline i s unknown. Control over commitments should b e restored.

Expenditures are o f t e n misclassified, sometimes to conceal misuse o f funds, s o financial statements are distorted. T h e n e w classification training should b e used to ensure that all classifications are correct. Accounts officers need m o r e supervision.

12

Checks are valid for three months, so the float i s always large.

F e w public servants are paid by check. Most are p a i d in cash. Payrolls are controlled by collective bargaining agents a n d there i s no physical identification (e.g. by supervisors) o f all personnel on the payroll to prevent payment to fictitious persons (ghost workers). Verification o f payees i s necessary.

T h e r e i s no payroll bank reconciliation a n d follow-up o f uncashed checks. Ghost workers p a i d by check are also not discovered. B a n k reconciliation by persons not i n v o l v e d in payroll preparation would detect such losses.

Payrolls a n d pension schedules are prepared mainly manually. Computerization would reduce the opportunities for corrupt gain a n d yield administrative savings. At the Workshop on Budgeting, Accounting, Reporting a n d I n t e m a l Control, participants recommended that payroll, provident fund a n d pension systems should b e computerized. B&g a n d accounting systems in the p u b l i c utilities (WASA, DESA and PDB) should also b e computerized: this would reduce the delay in i s s u i n g bas a n d thereby reduce system loss a n d illicit gains. I t was p o i n t e d out that there i s internal obstruction to computerization.

A n o t h e r transparency issue arises from the v o l u m e o f payments that are charged to sztspense accounts a n d not cleared promptly to expenditure. These were initially estimated at Tk 15 billion in PWD, Roads a n d N g h w a y s and Public Health Engineering alone (Chowdhury 1998). These payments include legitimate expenditures for stocks not yet used, a n d expenditures on behalf o f other divisions a n d departments for w h i c h the account codes are n o t i f i e d later. W h e r e budgets are used up, however, such expenditures are excess (illegitimate). T h e y remain in suspense unless and until they are charged in a later year against a n e w budget. In practice these adjustment entries are delayed, even for years. Suspense accounts are also used to hold up a n d divert funds, especially funds released towards the end o f the financial year. In the end-of-year Finance Accounts, therefore, expenditure i s under-recorded a n d the excess i s part o f the Public A c c o u n t balances. These balances are not disclosed in Finance Accounts in past years, w h i c h showed only receipts a n d payments. Finance Division should take action to c o n t r o l dlegal use o f sumense accounts. L

Recommendations are as follows:
e

Bring all donor disbursements promptly to account. Donors should provide regular and timely data in accordance with the standard Government classifications.
Reconcile receipts and payments with the bank promptly and explain all differences Train and supervise accounts officers to classify expenditures correctly. Re-introduce commitment accounting. Computerize the payroll, provident fund and pension procedures, and the billing and accounting systems in the public utilities. Control the use o f suspense accounts.

e e e e e

T h e objectives of cash and debt management are: to ensure that sufficient cash i s avadable as a n d w h e n needed to meet commitments to make payments; to m i n i m i z e the cost o f borrowings, n e t o f the returns on any s u r p l u s funds; and to c o n t r o l aggregate cash flows within fiscal, monetary a n d legal l i m i t s .

T h e responsibhty for cash and debt management i s divided between Finance Division (Budget Wing), E c o n o m i c Relations Division (with regard to external flows a n d debt), a n d Bangladesh B a n k (with respect to domestic flows a n d debt). T h e C&AG keeps the accounts, but has no r o l e in cash and debt projections.

Quarterly releases of funds to spending ministries are delayed. Final quarter releases are sometimes received late in June, so they cannot b e used (legitimately) within the fmancial year. These delays indicate poor cash management. Commonly, revenue projections a n d development allocations are over-estimated a n d are reduced in the mid-year revisions. Deficits a n d borrowings are correspondingly under-estimated.

There are no laws limiting borrowing or the government deficit, nor i s there any m e d i u m - t e r m macroeconomic framework by w h i c h the Government undertakes to keep the deficit/GDP ratio within a g v e n limit. Attempts to make better fiscal projections by means o f a general equilibrium m o d e l have not so far been successful. T h e M i n i s t r y o f Finance uses simple rules of thumb for i t s projections, but appears to b e over-ambitious in i t s growth a n d revenue forecasts. A Fiscal Analysis a n d Monitoring Unit i s to b e set up in the Budget Wing o f Finance Division, to r e p o r t to the Technical Secretariat o f the Resource Committee.

T h e Bangladesh B a n k i s the Government's bank, a n d the f i r s t lender to the Government. Where i t has no branches, the Sonali B a n k acts as i t s agent, receiving a n d paying government monies on i t s behalf. T h e entire cash balance with the Bangladesh B a n k i s treated as 0ne,13 though i t operates a separate 'window' for each CAO within this balance. Checks do not d i s t i n g u i s h Consolidated Fund transactions from Public A c c o u n t transactions, nor revenue expendture from development expenditure, nor revenue a n d expenditure heads. Bangladesh B a n k acts solely as a banker, meeting checks that are properly drawn, and has no expenditure c o n t r o l function such as checking aggregate payments agamst budgets.

There are m a n y b a n k accounts holdmg public funds that are not brought within the G o v e r n m e n t accounts. Most o f these accounts have been established at the request o f donors to ensure that their disbursements are h e l d safely a n d are immediately available for the projects they are aidmg. Examples are dollar special accounts (DOSA), convertible taka special accounts (CONTASA) a n d imprest accounts.14 Some o f these are transferred to accounts h e l d by commercial banks on behalf o f aided projects. In effect, the Government i s lending t h e m p u b l i c funds interest-free, then borrowing back from t h e m on Treasury bills to cover i t s short-term
There i s one General account and separate accounts for Food, Railways and Foreign Aid. 1999, there were 6 C O N T A S A accounts and 53 imprest accounts (RIBEC 1999e).

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14 At June

deficits. Secondly, accounting becomes dependent on reports by project h e c t o r s a n d some foreign a i d i s o m i t t e d from the Government consolidated accounts. T h e Bangladesh B a n k a n d C&AG O f f i c e should work out how these public funds can b e brought within the public accounts a n d how balances can b e p o o l e d to minimize government borrowing without prejudice to project autonomy a n d flexibility.

T h e paymaster for most central government departments in Bangladesh i s the Controller General o f Accounts (CGA), who operates the account with the Bangladesh B a n k for receipts a n d payments on both Consolidated Fund a n d Public Account. T h e n u m b e r of branch accounts i s not known. Some 5,000 individuals have access to Government check books15 a n d i t i s alleged that checks can b e d r a w n in PWD, Roads a n d Highways, BTTB, etc. without reference to budget h t s . 1 6 T h e CGA in association with the M i n i s t r y of Finance should review the entire spectrum o f government banking arrangements covering a comprehensive census of: ( ) n k accounts ib a harboring public m o n e y (including project/foreign aid accounts a n d extra-budgetary b a n k accounts); ( i i ) c o n t r o l and operate these accounts; (iii) w h a t are the sources o f receipts into who each account a n d w h a t types of disbursements are made; (iv) the average end-of-the-day cash float in each account; (v) w h i c h supervisory authority receives reports on the transactions passing through each account; and, most importantly, (vi) w h a t public interest, if any, justifies continuance o f each b a n k account outside the Treasury. All b a n k accounts outside treasury c o n t r o l that are not essential should then b e closed a n d checkbooks w i t h d r a w n from officials who would no longer need them. T h e government payment system needs r e f o r m to work in h a r m o n y with fully consolidated government cash balances in a Treasury Single A c c o u n t supplemented by a small n u m b e r o f zero-balance or transit accounts for day-to-day payment operations o f the CGA's payment offices.

T h e E c o n o m i c Relations Division (ERD) o f M i n i s t r y o f Finance i s responsible for management a n d coordination o f external debt, and maintains a n M I S on all p u b l i c sector external debt. Private sector external debt i s small, but rising." Commitments, disbursements a n d repayments o f external loans a n d grants are entered in a computerized system (UNCTAD's D e b t Management a n d Financial Analysis System, D M F A S version 5.0). D a t a originate with ERD except in respect o f IMF credits and special borrowings by M n i s t r y o f Food, Defense, Biman, Shipping Corporation a n d Petroleum Corporation These latter are collected from the respective sources a n d also entered in the database. From D M F A S , data on the projected debt service liabilities are sent to Finance Division for incorporation in the Estimates a n d the Revised Estimates. D a t a on donor disbursements and debt repayments a n d interest are sent monthly to the CGA. Statements from donors are reconciled with the DMFAS data. N o reconciliation i s attempted with project data.

T h e G o v e r n m e n t borrows from the Bangladesh B a n k on a standing overdraft arrangement (called Ways a n d Means Advances). W h e n borrowing goes over the agreed overdraft limit, the Bangladesh B a n k issues 91-day Treasury bills on behalf o f the Government. These are sold to the commercial banks a n d to itself. Thirdly, the Bangladesh B a n k issues longRIBEC 1997d, p.16. All other departments are subject to pre-audit, ie. the checking o f each bill by the CAO before payment. The delegation o f cheque-writing powers without pre-audit b y the C&AG (called departmentalisation) was intended to make Secretaries, as Principal Accounting Officers, more completely responsible and accountable for financial control in their respective ministries a n d divisions. This has not happened (World B a n k 2000b). 17 See World B a n k ... There i s now a Hard Loan Committee, chaired by the Governor of Bangladesh Bank, which examines all private debt.
15
16

t e r m G o v e r n m e n t bonds with the approval o f the Finance Secretary.18 I t i s planned to install the ERD system also in Bangladesh B a n k for better management o f domestic public debt.

T h e r e i s a lack o f transparency in public debt. Loans do not require parliamentary approval in advance. E v e n expost facto the C&AG does not include debt in h i s audit report. E x t e r n a l p u b l i c debt i s reported annually by ERD to Parliament (FXD 2OOO).19 There does not appear to b e any reporting o f domestic public debt to Parliament. D e b t c o u l d b e reported annually as a n annex to the Finance Accounts. This statement should cover both external a n d domestic p u b l i c debt, a n d b e classified by type o f instrument and sector o f debt-holder as required by the IMF in i t s system o f Government Finance Statistics.20

T h e r e i s no reporting o f Government guarantees. There i s a n unknown v o l u m e o f contingent liabilities hanging over the Government’s head, mainly from guarantees to lenders to public enterprises and counter guarantees to the Bangladesh Bank, e.g. Tk 3 billion to Bangladesh Jute M i l l s Corporation, and Tk 21 billion due to independent p o w e r producers from the P o w e r D e v e l o p m e n t B o a r d a n d D h a k a Electricity Supply Authority (see RIBEC 1993: 134). These potential liabhties should s d a r l y b e reported in accordance with international standards o f fiscal transparency, such as those of the IMF and OECD.

Recommendations in this area are as follows:
0 0

Bring special accounts for foreign aid within the Government accounting system.
Review the number and distribution o f bank accounts and check books and close inessential accounts and withdraw checkbooks to reduce risk o f illegitimate spending. Include all public debt and contingent liabilities in the Finance Accounts, C&AG audit and parliamentary review.

0

Internal Reporting And Monitoring
Management accounting u n i t s are being set up in the m a i n spendmg agencies. In the M i n i s t r y o f H e a l t h a n d Family Welfare, the Management A c c o u n t i n g Unit (Accounting, Reporting a n d I n f o r m a t i o n Technology) i s pioneering in the development o f a n internal reporting system, with R I B E C - S H A P L A assistance. Revenue expenditure has yet to b e apportioned to projects. T h e main p r o b l e m i s lack o f suitable personnel. This unit has only o n e officer. Additional staff should b e trained and posted to management accounting units.

In the Controller General o f Accounts office, budget data are uploaded from the Finance Division database a n d combined with revenue a n d expenditure data from the &strict a n d thana offices and sent monthly to the respective C h i e f A c c o u n t i n g Officers. All Secretaries get monthly management reports from their CAOs.

billion held on Public Account (Office of the C&AG 1999, pp.25/6). 19 At 30 June 1998, external public debt w s $14.0 billion. Debt service in FY98 was $578 million (ERD 1999). a 20 We are informed that the Finance Accounts for FY99 include a statement of public debt.

There i s also internal (or administrative) borrowingby the ConsolidatedFund from deposits and other balances held on Public Account. At 30 June 1998, for instance, the Consolidated Fund had borrowed the entire balance of Tk 128
18

T h e Finance Division receives monthly reports of expenditure from the Controller General o f Accounts. A recently established Financial I n f o r m a t i o n Monitoring Unit analyses these reports. Comparisons with budget are l e f t to the individual ministries a n d divisions until mid-year, w h e n they are called on to put up their supplementary estimates.

T h e Implementation Monitoring a n d Evaluation Division, M i n i s t r y o f Planning, operates a monitoring system, with formats covering expenditure and physical progress, a n d undertakes field inspections. 1,000 projects are said to have been inspected by IMED staff in E Y O O . Results are reported to the N a t i o n a l E c o n o m i c Council. IMED also participates in donor review m i s s i o n s "when asked", but there are problems o f travel a n d subsistence differentials.21

Government-wide there are about 1,300 development projects. Project accountants r e p o r t to their Project Directors, donors, the respective m i n i s t r y Management A c c o u n t i n g Units, the CAO, the M i n i s t r y o f Planning, Implementation Monitoring a n d Evaluation Division, a n d to the Foreign-Aided Project Audit Directorate. T h e demands for reports in m a n y different formats are b e y o n d the capacity o f Project Directors, m a n y o f whom have no accountants or computers. T h e r e are problems obtaining data on expenditure by donors. T h e RIBEC project has designed a n d field tested a Project A c c o u n t i n g Manual (RIBEC 2000b) that i s intended to p r o v i d e a p l a t f o r m for meeting all these needs. Computers a n d training assistance wlll b e required for i t s implementation.

O n e p r o b l e m i s that there i s no sub-classification of projects by activi~, nor any activitybased costing system by w h i c h project expenditures w h i c h are c o m m o n to m o r e t h a n o n e activity c o u l d b e apportioned to the respective activities. Most donors expect project financial management systems to b e able to r e p o r t expenditures by log-frame activity, as this is the level at which oapzd/progress is also measwed. T h e solution to h s p r o b l e m m a y come from the further development of Management A c c o u n t i n g Units in the spending ministries.

Recommendation i s therefore as follows:
0

Develop ministry capacity to track expenditures to project activities and relate these to results.

Internal Audit Internal Audlt Cells exist in large ministries such as Works a n d E d u c a t i o n (perhaps a dozen in total), a n d in m a j o r autonomous bodies. T h e PAC has called for such a unit to b e established in each m i n i s t r y under a Joint Secretary to follow up on i t s recommendations. Answering C&AG queries a n d following up on PAC recommendations should b e only p a r t o f the duties of a n Internal Audit Cell. I t should also undertake i t s own independent p r o g r a m of internal audit. Cells are very under-staffed22 a n d are o f t e n subject to the head o f the accounting function. There are no c o m m o n policies on such issues as operational independence,
21

22

D i r e c t o r General, IMED. Ministry o f E d u c a t i o n D e p a r t m e n t of I n s p e c t i o n a n d Audit has b e e n able to audit only 10% of t h e schools receiving subvention. T h i s i s inadequate: C&AG audits found m a n y cases of false r e p o r t i n g a n d irregularities.

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professional competence and training, scope of work, conduct o f work, involvement in risk management, reporting or quality review. T h e y have contact with the external audit only on v i s i t s from the latter; there i s no sharing o f work programs or reports, a n d the C&AG can place little reliance on their fmdmgs.

Recommendations are as follows:

0

Extend Internal Audit Units to all ministries/divisions and strengthen existing Internal Audit Units. Develop central oversight o f internal audit standards. Internal audit units should report to their head o f department. Train internal audit staff in performance audit. Develop cooperation between internal and external audit.

0 0 0 0

External Reporting

On behalf o f the C&AG (who i s s t i l l constitutionally responsible for the form o f the accounts), the Controller General o f Accounts (CGA) prepares a n A n n u a l Receipts a n d Disbursements A c c o u n t for the central government as a whole.23 These are published annually (the Finance Accounts) together with a supporting statement o f actual expenditures compared with budget authorizations (the Appropriation Accounts).
T h e Finance Accounts a n d Appropriation Accounts are ready i draft wihn six months n o f the year end, i.e. the accounts for FY 2000-2001 should b e available by the e n d o f December 2001. NBEC aimed to include the audited accounts for 1998/99 in the budget document for 2000/01. Annual accounts take longer to prepare than monthly accounts as a n e f f o r t i s made after the year ends to complete adjustments, close suspense accounts, a n d correct mistakes in posting a n d classification.

T h e preparation o f the accounts for each Wstry/Division i s divided between the C h i e f Accounting O f f i c e r (who keeps accounts only for transactions undertaken in Dhaka, called 'Presidency accounts', a n d who i s supervised by the Secretary) a n d the CGA, who incorporates transactions origmating in the districts a n d thanas, a n d i s supervised by Finance Division, M i n i s t r y of Finance. T h e responsibhty for preparing financial statements i s divided between the Controller General o f Defense Finance (for defense services), the CAO Railways (for railways) a n d the CGA. T h e CGA consolidates all these a n d produces the annual Finance Accounts o f the GOB a n d Appropriation Accounts.

There i s no consolidation of central govemment accounts with local authority accounts to form 'general government' accounts, nor consolidation o f general government with p u b l i c enterprises to form p u b l i c sector accounts (as i s now expected by the IFAC standard on consolidated fmancial statements). T h e C&AG (Additional Functions) Act, 1974, requires the C&AG to prepare a general financial statement summarizing the accounts of the Government,
23

I n c l u d i n g Postal, Defence and Railways after adjusting their accrual accounts onto a cash basis.

statutory public authorities, public enterprises a n d local authorities for the last preceding year (article 7). This i s not done. T h e accounts of both the Consolidated Fund and Public A c c o u n t are k e p t on a cash basis. This should b e simple but their format i s not transparent. Accounting i s single entry. T h e Finance Accounts are receipts a n d payments accounts, and no GOB balance sheet i s prepared a n d published. T h e accounts classification introduced by the RIBEC project from July 1998 should enable m o r e meaningful statements to b e prepared in future years, to c o n f o r m to international public sector accounting standards. This has recently been done for the central government budget ( I E RB C undated).

T h e IFAC Public Sector Committee has issued a number of international public sector accounting standards (IPSAS) and draft standards in recent years, covering both cash-based accounting (as in most Government departments) and accrual-based accounting (as in the p r o f o r m a accounts k e p t by departments running commercial operations).24 These IPSAS relate mainly to dlsclosure through external statements. T h e C&AG should set up a team o f experts to undertake a n in-depth review o f the form o f Government accounts with a v i e w to moving towards compliance with IPSAS standards.
U n d e r cash accounting, the reporting m o d e l i s a Cash Flow Statement (distinguishing cash flows from operating activities, investing activities a n d financing activities) a n d Notes, includlng a statement of accounting policies, such as the definition of the reporting entity, the point of recognition for receipts a n d payments, the treatment of reserves a n d the translation of amounts denominated in foreign currency. Additional note dlsclosures should include:

L i s t s of physical assets a n d investments

Borrowings
Commitments Contingencies (guarantees, indemnities and securities) Inappropriated payments (i.e. excesses of expenditure over budget) T a x expenditures (estimates o f revenue foregone because o f preferential

provisions o f the tax code)
Forecast information.

Bangladesh does not yet report i t s government finance statistics annually to the IMF in accordance with i t s G F S system, as about 120 other countries are doing. Ths requires a reclassification o f central government revenue, expenditure a n d debt, economically a n d (expendlture only) functionally, in accordance with the G F S standard. T h i s would a d d to the international comparabhty of G o v e m m e n t data.

21 See IFAC Guideline for Government Financial Reporting (1998), and Financial Reporting under the Cash Basis of Accounting, Exposure Draft 9 , issued May 2000, available on I F A C website: www.ifac.org

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T h e Rules of Business of the G o v e m m e n t require ministries a n d other agencies to prepare a n annual performance report. Several agencies do not comply (C&AG i s a n honorable exception). PARC has recommended that every govemment office required to deliver p u b l i c goods or services should publish a n annual r e p o r t on the delivery o f those goods or services a n d make i t available to the public.25

Recommendations are as follows:

0

Review the form o f Government accounts and add the disclosures required under the international standard (or draft standard) for government accounting on a cash basis.

0

All departments to prepare and publish annual performance reports.

Reforms in Public Sector Budgeting Accounting and Internal Control
There should b e political will for m a j o r reforms in public sector financial management. To bring about sigruficant improvements, steps need to b e taken to increase the professional
s k i l l s o f the h u m a n infrastructure in the ministries in respect o f budgeting, accounting a n d reporting. In addition, steps should b e taken to increase the use o f technology a n d change the mind-set o f staff through change management training a n d workshops to use financial management as a tool. (For m o r e d e t d s please see the national institutional review, World B a n k 2000h, Chapter 2).

T h e RIBEC family o f projects i s a success story in Bangladesh in bringing improvements in public sector budgeting, accounting a n d reporting. These reforms have succeeded through consensus building a n d participation o f the stakeholders. T h e G o v e r n m e n t m a y consider buildmg on t h i s success and t a h n g steps for the sustainability o f this reform. T h e M i n i s t r y of Finance should work on a m e d " a n d long-term strategic p l a n to m o d e m i z e p u b l i c sector fmancial management. T h e key institutional issues, w h i c h are hindering reforms, should also b e addressed. Controlling p u b l i c expenditures i s critical for macro-economic s t a b h t y a n d the economic development o f Bangladesh. A Public Expenditure Review Commission should b e set up to review the expenditures of the public sector.

T h e financial management capacity in m a n y public organizations, such as the Post Office, Telegraph a n d Telephone Board, Railway Authority a n d m a n y autonomous bodies, i s very weak. Steps should b e taken to strengthen the financial management capacity o f these organizations.

25

Public Administration Reform Commission (2000) para.5.39.

4. Local Government

General

T h i s section covers the f i a n c i a l management o f local government institutions (LGI~),
viz. bo corporations (Dhaka, Chittagong, I a u l n a a n d Rajshah), munic$alities (pourashavas, o f w h i c h there are l98), a n d union councils (union parishads, o f w h i c h there are 4,472, covering some 85,500 vdages). These are all elected bodies. T h e y spend Taka 5-10 bdlion a year o f p u b l i c funds. T h e findings in this r e p o r t are based mainly on a survey that covered a representative sample o f city corporations, municipal councils a n d union councils (World B a n k 2000e). Not covered are 64 D i s t r i c t Councils (Zila Parishads) a n d 489 Thana (Upazila) Parishads, w h i c h are presently regarded as branches o f central government.

G o v e r n m e n t control, direct a n d indirect, on LGIs i s quite extensive a n d strong (Local G o v e r n m e n t Commission 1997, World B a n k 1997b), but not effective. A high proportion o f LGI revenue comes from central Government. City corporations assess a n d collect only municipal taxes a n d other small revenues. T h e L o c a l Government Commission p o i n t e d out in i t s r e p o r t that LGIs have not been able to attain financial solvency due to lack o f key personnel, inadequate a n d outdated valuation o f holdings for tax purposes, apprehension of losing popularity, widespread tendency to avoid payment o f tax, absence o f linkage between payment o f tax a n d services provided, n a r r o w base of tax, etc. LGIs at different levels have overlapping revenue jurisdictions, a n d the Commission recommended that a Finance Commission b e set up to rationalize sources o f revenue at all levels, a n d ensure that revenues were commensurate with functions, responsibilities, population, etc.

Training of LGI officers i s in the hands o f the N a t i o n a l Institute o f L o c a l Government. This training i s said to b e practical a n d effective (though not for training in specialized financial management skills), but under-staffed a n d under-funded. Recommendations were made in 1997

Municipal councils (in cities and m corresponding to Parliament at the central accountable t o the C functionally. The Union Collector, headed b the Executive Council there are zation i s very simple, with a Secretary,

Parishads) Ordinance 1983 and Amendments up t o 19

forthwith remedy any defects or irregularities and re

vernment the action taken by it”.

to expand the training programs o f the NILG for both the municipal personnel a n d the elected leaders (World B a n k 1997b: 18,26). T h e need to expand training in financial management i s evident in the low standards o f performance a n d the extent o f criticism in audit reports.

Both M L G R D C and LGI officials appear to b e in favor o f r e f o r m o f LG financial management, though opposition i s hkely from Revenue Departments (assessment a n d collection) a n d Engmeering Public Works Departments as construction contractors are said to b e vehemently opposed to all kinds o f documentary evidence or other media o f accountability (World B a n k 2000e). There was a very positive response in favor o f progressive computerization.
Local Government Budgeting

As in central government, the budget i s divided into a Revenue budget a n d a D e v e l o p m e n t budget. T h e budget timetable, procedure and forms are set by the MLGRDC. LGIs are legally required to balance their budgets. There i s no Budget Manual.
Revenue budgets go through the Budget/Accounts Section, the CEO, the C o u n c i l a n d the MLGRDC. Development budgets start with proposals for projects in each ward. T h e Chairman/Mayor forwards proposals to Engineering Section for feasibility study a n d cost estimation. Project estimates are consolidated into the Development budget, w h i c h follows the same p a t h o f approvals as the Revenue budget. Development budgets appear to observe national priorities such as poverty alleviation and revenue generation. Budgeting of revenue i s o f t e n highly unrealistic, with actual collections a third o f estimates or less. T h e r e i s considerable potential for improving collection o f taxes and rates. Collections in Rajshahi City Corporation in FY97, for instance, were only 44% o f current demands issued and only 8% o f mounting arrears (Rahman Rahman Huq 1999b). Budgets are always revised during the year. There i s no computerization o f budgeting, nor any variance analysis procedure. Budgets are treated as a necessary hurdle to getting resources, not a tool o f management.

Local Government Accounting

In general, government accounting rules are followed. Some city corporations have accounts manuals. Most corporations a n d about h a l f the municipalities are doing monthly b a n k reconciliation. Union councils do not do bank reconchation. Substantial delays are c o m m o n in the recording a n d processing o f transactions, w h i c h breeds errors a n d frauds. City corporations a n d some municipalities are using computers, but mainly for word processing, not accounting. MIS and computerization programs have been recommended (World B a n k 2000e).

Only D h a k a City Corporation uses a n accrual basis o f accounting. This brings revenue arrears, outstandmg uullty bdls a n d other assets a n d liabilities into the formal records a n d subject to the arithmetical d i s c i p h e o f double entry. This increase in control, however, depends on a higher level of accounting sophistication. D h a k a City Corporation i s the only LGI that has the services o f a qualified accountant. Some others have part-qualified professionals a n d m a n y have commerce graduates. MLGRDC (Pourashava Support Unit) has recommended a n accrual system o f accounting for all municipalities, w h i c h was prepared as a n output o f the A D B - s u p p o r t e d

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Secondary Towns Infrastructural Development projects. However, a recent survey found no evidence o f i t s use (World B a n k 2000e).

W h i l e i t would b e better for all city corporations a n d municipalities to have accrual accounting systems, in the general absence of qualified budgeting a n d accounting personnel, t h i s c o u l d only b e a long-term aim. T h e short-term priority should b e to i m p r o v e the operation o f the existing cash-based system a n d to put i t onto a double entry (self-checking) basis. This was recommended by a n earlier study (World B a n k 1997b) and i s repeated here. I t i s recommended that accrual accounting b e p i l o t e d in LGIs where there are sufficient trained budget a n d accounts officers (of a t least accounting technician level) to continue i t s use after the consultants leave. As a f z s t step, introducing commitment accounting so as to p e r m i t m o r e effective c o n t r o l over expenditures a n d the associated cash outflows c o u l d enhance the cash-based accounts.

W h e r e the volume o f transactions i s high, accounts should b e computerized in a way that allows accrual modules such as receivables, payables and fixed assets to b e added later.

Most LGIs own substantial fixed assets w h i c h are not properly maintained, nor recorded in a F i x e d Assets Register, nor i s their condition and existence periodically checked. Estate Sections o f LGIs need training in this.

Local Government Internal Control

In most LGIs (Dhaka City Corporation i s again a n exception), budgeting a n d accounting functions are combined in a single department. This opens up the opportunity to cover up misappropriations by budgeting accordmgly. Where the n u m b e r o f posts allows, budgeting should b e separated from accounts. Sample municipalities h a d Accounts/ Budget sections ranging from two to six persons.

Projects are implemented by inviting tenders in the prescribed form. T h e controls are o f t e n flouted through negotiated arrangements (World B a n k 2000e). Union Councils are not allowed to undertake m o r e than 8 projects a year, a n d n o n e over Tk 25,000. Engineers monitor work done a n d give contractors certificates on w h i c h they prepare their bills. Bills are checked by Accounts, a n d recommended for payment by the respective W a r d Commissioner, then approved by the Chairman a n d paid by Accounts.

There i s considerable political influence in tax assessment a n d collection, procurement, a n d recruitment. Service rules (BSR 1992) are followed. Grade 1 a n d 2 personnel are recruited by the MLGRDC, whde grade 3 a n d 4 personnel are recruited locally. Organograms are usually available a n d up to date, though not necessarily appropriate to functions a n d workloads. Some key positions m a y remain unfilled for long periods. Job descriptions are rare.

There are no Operations Manuals setting out procedures to b e followed a n d the internal checks that should operate, such as the separation of authorization, recording a n d custody responsibihties. Together with the absence of job descriptions, this means that responsibility for

any action i s not formally assigned, thus maktng i t difficult to establish who i s accountable. As such, u n d e r the present internal c o n t r o l arrangement, there i s a risk o f misuse o f scarce LGI resources. There i s a public perception that the misuse o f resources in LGIs i s m o r e widespread compared to other Government departments.

Local Government Reporting
T h e r e i s no i n t e m a l reporting o f actual receipts a n d expenditures against budgets, a n d no performance monitoring or evaluation. Further computerization, including setting up separate MIS Units, would help to f this gap. d

D h a k a City Corporation prepares a n annual I n c o m e and Expenditure account a n d a Balance Sheet. O t h e r LGIs prepare only a Receipt a n d Payments account. Most annual statements are up to date, e.g. all the sample municipalities h a d their statements for 1998/99, but the last statements for Chittagong City Corporation were for 1994/95. Financial statements are not published. In a sample of 19 LGIs, only one displayed i t s financial statements publicly as required by l a w (World B a n k 2000e). N o n e of the LGIs publishes a n annual r e p o r t o f i t s achievements. Thus there i s no transparency and accountability o f LGI operations to the stakeholders, both local a n d external. Financial reports should b e mandatory a n d prepared on a predetermined standard basis.

To stimulate institutional a n d financial reforms, the World Bank, through M u n i c i p a l Services Project (MSP) i s supporting 14 municipalities and two city corporations to undertake, in f i r s t phase, a municipal assessment o f participating LGIs (a) to identify institutional weakness; @) to develop a program o f operational a n d financial management improvements, involving administrative and organizational changes w h i c h would strengthen the budgeting, financial a n d accounting system including revenue enhancement measures; (c) to prepare a Financial a n d Operational A c t i o n Plan( FOAP) with agreed institutional and financial performance indicators;(d) thereafter, s i g n a M u n i c i p a l Development Agreement with GOB to i m p l e m e n t FOAP and agreed physical investment p r o g r a m within an agreed time frame.

Local Government Internal And External Audit

Only D h a k a City Corporation has a n internal audit section. I t i s mainly occupied with the queries a n d observations raised by the C&AG. O t h e r LGIs have no internal audit, not even on paper. T h e M I n i s t q of L o c a l G o v e r n m e n t does not appraise internal controls in the LGIs. Internal audit units should b e established in the other city corporations a n d the larger municipalities, e.g. where annual expenditure i s running at m o r e than Tk.10 million. In addition, Audit Committees c o u l d b e established in city corporations and the larger municipalities, comprising non-executive W a r d Commissioners and other designated officials.
T h e C&AG undertakes external audit o f all LGIs a n d has all the necessary legal powers. Aults are rules-based compliance audits (no performance audits or system-based audits). Audits are conducted by audit teams, w h i c h v i s i t a n d work full time for a period, e.g. 3 weeks for a

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municipality (grade A) a n d the year round for D h a k a City Corporation. Audlts are confined to LGI offices a n d do not generally cover development projects in the field. Audit queries that are not resolved on the spot are compiled into a prelunrtlary report, w h i c h i s sent for comments, then a final report, called ‘Broad Sheet report’. T h e LGI i s given 6 weeks to reply. I f a satisfactory reply i s not forthcoming, the MLG arranges a tripartite meeting (officers from the M i n i s t r y , LGI a n d C&AG) to resolve outstanding issues. Unresolved issues (audit objections) t h e n go into the C&AG’s r e p o r t for transmission to the President and PAC.

T h e C&AG has 22,000 audttable units to b e audlted by 3,500 o f h i s staff most o f whom are at junior levels. This i s no doubt a monumental task to p e r f o r m effectively. I t i s believed that with h i s current level o f staffing and skills, i t would b e difficult for the C&AG to provide quality audit services to LGIs. In m a n y countries, such as the U.K., private sector auditors conduct LGI audlts.

Quality i s a n i m p o r t a n t issue in private sector audits also. But there are certain private sector audlt firms who can provide high quality audit services p r o v i d e d appropriate terms o f reference are d r a w n up a n d appropriate fees are paid. I f i t i s decided in principle by the C&AG that private sector auditors would b e engaged to conduct LGI audits, they should b e done by carefully short-listed private firms who are capable of providing quality audit services. All private audit firms for LGI audlts m a y b e contracted by the C&AG.The spirit should b e to m o v e t o w a r d the regulation a n d quality c o n t r o l o f audits a n d away from audlts by the C&AG staff themselves. This approach would help in proper use o f already over-stretched C & A G resources a n d extend C&AG audits in other priority areas.

For these audits, the fees may b e p a i d by the LGIs themselves based on fees approved by C&AG. This arrangement would p r o m o t e the exchange o f knowledge a n d ideas between private a n d public sector accountants and audltors. In time, the C&AG m a y consider contracting out all LGI annual financial audits to the private sector and to make these a basis for performance audits in the LGIs by the C&AG staff.

Audit reports are not published, nor circulated to all Council members. A low-cost recommendation i s that MLGRDC should enforce the existing laws a n d check that annual statements a n d audit reports are publicly displayed, and take action against delinquent councils. Without this, there i s little or no local accountability.
Recommendations are as follows:

0

o f LGIs.
0

Publish annual performance reports including financial statements and audit reports

Expand and upgrade training programs in financial management o f the National Institute for Local Government. Improve the cash-based accounting o f local government institutions by putting i t onto a double-entry system and pilot accrual accounting only in LGIs where there are sufficient trained staffs.

0

Separate b u d g e t m a n a g e m e n t from a c c o u n t i n g a n d establish a b u d g e t s e c t i o n in e a c h L G I h e a d e d by a B u d g e t O f f i c e r where there are sufficient personnel. P r o m o t e progressive c o m p u t e r i z a t i o n o f b u d g e t i n g a n d accounting, a n d t h e i n t r o d u c t i o n o f M I S U n i t s to p r o v i d e d a t a for m o n i t o r i n g a n d e v a l u a t i n g performance. M a i n t a i n a n d u p d a t e asset registers in L G I s . E s t a b l i s h separate i n t e r n a l a u d i t u n i t s in c i t y corporations a n d larger m u n i c i p a l i t i e s . In addition, Audit Committees s h o u l d also b e set up in L G I s with adequate representation f r o m c i v i l society a n d professional groups. H a r m o n i z a t i o n of f i n a n c i a l r e p o r t i n g practices a p p l i c a t i o n o f standard formats.

in L G I s through m a n d a t o r y

C&AG to c o n t r a c t out some LGI audits to professional firms.

5. Public Enterprises

Nonfinancial Public Enterprises

T h e r e are some 200 nonfinancial public enterprises (NFPEs), grouped under 40 public corporations. Together, their spending o f public funds i s o f the order o f Tk 200 biulon a year (compared with Tk 300 bilhon by central government). T h e i r value added accounts for 1.8% o f GDP, down from 4.5% in 1985. T h e y are involved in all sectors - manufacturing, utilities, transport a n d communications, trade, agriculture a n d fisheries, construction a n d services. At the e n d o f FY99, they h a d book assets valued at Tk 761.8 bdhon, financed 32% from equity a n d 68% from debt. On operating revenue that year o f Tk 201.9 bdlion, value added was Tk 39.1 bdhon, divided between employee compensation Tk 16.0 billion, depreciation Tk 19.5 bdlion a n d operating s u r p l u s o f Tk 3.6 bdhon. Their r e t u r n on total assets, as a measure o f economic efficiency i free markets, was only 0.8%. A f t e r chargmg interest and tax, their n e t financial result n was a loss o f Tk 4.7 billion.'

NFPEs, o f course, do not operate in free markets. T h e i r financial performance i s largely dictated by p o l i c y a n d operational interventions by the Government, particularly p r i c i n g a n d output decisions. I n FYOO, their l o s s was estimated at Tk 31 bdhon,2 a n enormous increase on the previous year, but o f this, Tk 17 billion was due to the Petroleum Corporation keeping i t s domestic prices unchanged despite higher import costs, a n d Tk 10 billion was due to the higher output of the P o w e r Development B o a r d (higher output enlarging the operating loss). B e h i n d the a h n i s t e r e d prices, however, i t i s r e c o p e d that there i s widespread mismanagement, politicized l a b o r relations a n d corruption. Wages a n d salaries have been increasing faster than productivity in public enterprises in all sectors.3

N o n f i n a n c i a l public enterprises are quasi-fiscal entities, legally separate from the Government, a n d are not included in the government budget. H o w e v e r they have a n u m b e r o f fiscal effects. T h e y receive equity injections, loans and subsidies from the Government; they repay loans, a n d pay interest, taxes a n d dividends.4 There are also m a j o r effects on macroeconomic balances that are off the budget. Supplier cre&t i s guaranteed by the Bangladesh B a n k on a counter guarantee by the Ministry o f Finance. W h e r e a corporation cannot meet i t s debt service liabdity, i t borrows further from the commercial banks.5 Since 1995, all offers o f supplier credit have to b e cleared by a committee including the Finance Secretary, Planning Secretary a n d Bangladesh B a n k Governor.

NFPEs are governed according to their respective statutes, not by company law. Legally they are autonomous bodies, but the respective ministries appoint their boards of directors a n d in practice NFPEs are highly regulated by their ministries. All personnel, investment, borrowing,

K i b r i a (2000). National Wages a n d Productivity C o m m i s s i o n (1998). 4 T h e average annual n e t flow FY91 to F Y O O to NFPEs from GOB has b e e n Tk 7.1 bdlion. T h i s comprises: equity 8.8, loans (assumed all from GOB) 25.9, subsidies negligible, less loan repayments 12.2, interest 9.5, taxes 2.9 a n d dividends 3.0. D a t a from Monitoring C e l l are actual f l o w s except for FV99 (revised estimate) a n d F O (budget). Y O -5 At e n d FY98, short-term b a n k loans were Tk 21 billion, a n d short-term foreign loans Tk 42 billion.
2
3

1

MonitoringCell, M i n i s t r y o f Finance, audited actual data.

M i n i s t r y of Finance (Monitoring Cell) approves budgets.

dividend, p r i c i n g a n d m a j o r procurement decisions have to b e cleared

with the m i n i s t r y . T h e

A p p o i n t m e n t s o f b o a r d members a n d c h e f executives are the most i m p o r t a n t decisions affecting PE performance. T h e present quality of directors a n d top executives i s v e r y mixed. These personnel should b e appointed strictly on their qualifications, experience a n d track r e c o r d in business. T h e procedure in I n d i a i s for the Minister to make each a p p o i n t m e n t from a short l i s t o f candidates prepared from a central database o f qualified personnel. T h s m a y b e considered for adoption in Bangladesh.

Public Enterprise Planning and Budgeting NFPEs are subject to a s d a r p l a n n i n g a n d budgeting framework to central G o v e r n m e n t ministries. E a c h corporation prepares i t s estimates starting in January, together with i t s revised estimates for the current year, for w h i c h i t has the f f l s t six months’ actual data. About two NFPEs out o f three have partially computerized their budget process. All projects have to b e approved by the Planning Commission a n d included in the ADP. Projects that a NFPE i s proposing to finance itself are also included in the ADP, but only after the Monitoring C e l l has certified to the Planning Commission that the NFPE will have the necessary funds after p a y i n g i t s liabilities (debt service liabhty, customs duty, etc).6 T h e Revenue a n d D e v e l o p m e n t budgets are submitted through the respective adrmnistrative ministries to the Monitoring Cell, w h i c h scrutinizes revenue budgets, ensures that they allow for operating a n d maintenance expendtures arising in projects taken over by the Government, negotiates targets a n d gives final a p p r o v a l during the M a r c h / M a y period. About 20 autonomous b o d e s have been signing annual ‘performance contracts’ with the G o v e r n m e n t since the 1980s. These are

The Reward and Punishment Scheme

Box 2

Informally, they m a y have added to the operating a u t o n o m y of the better-managed corporations, but overall they h a d no discernible effect on performance. However, in the last four or five years, contracts have been reinforced by a separate R e w a r d a n d Punishment Scheme that has added sanctions to the achievement or nonachievement o f targets (see box). I t should b e extended to all p u b l i c enterprises that will continue u n d e r g o v e m m e n t ownership (mainly the p u b l i c uulities a n d regulatory bodies) a n d l i n k e d with performance contracts.

highlight key operational a n d financial targets.

effectively extracts from the agreed budgets that

pay as bonus, o n a graduated scale. I f targets are n o t achieved, there i s a scale o f punishments including warning letters, suspension for a period (loss o f 50 percent o f pay), and removal f r o m the job. A few officers have actually been removed, and 20-30 have pended, despite union objection received bonus. Head office man also in the scheme: t h e i r performance i s rated on the average performance o f their subordinate u n i t s . The scheme appears to have been successful.

6

ADP funding m a y b e allowed to i m p o r t a n t NFPEs even if they cannot meet their d e b t service liabilities. T h e p r o j e c t screening does not remove unsound projects, such as the coal-frred p o w e r p l a n t a t Barakapuria.

Public Enterprise Accounting

All NFPEs keep their accounts on a n accrual basis. NFPEs have started computerizing their accounts (about 25 percent done) a n d payrolls (30-45 percent). Though there are labor fears, slow progress i s b e i n g made. B a n k reconcdiation are done manually. There are some failures to complete reconciliations. Auditors report these.
Public Enterprise Procurement
Corporations are graded by size a n d each grade has l i m i t e d authority to place contracts. T h e b o a r d o f a large corporation, for instance, m a y s i g n a contract up to Tk 100 d o n . A b o v e that h u t , proposed contracts have to b e approved by i t s ministry. A b o v e Tk 200 million, contracts go to the Cabinet Committee on Purchase. T h e great majority o f contracts are w i t h corporation authority. E a c h corporation has i t s own procurement guidelines, approved by i t s Board. Corporations follow the PWD Guidelines for works contracts, the gwdelines o f the D e p a r t m e n t o f Supply a n d Inspection for local purchases, a n d the guidelmes of the relevant donor for purchases of equipment from aid. Despite the f o r m a l appearance o f competitive tendering, guidelines are o f t e n breached by collusion a m o n g bidders, manipulation o f tender specifications, etc.

Public Enterprise Internal Control And Internal Audit
There are no procedure manuals. In their place, there i s a mass o f circulars on various matters such as financial delegation of power, administrative delegation, submission o f budgets, investment a n d the processing o f projects. F e w corporations have job descriptions. Payrolls t e n d to b e controlled by the collective bargaining agents for labor. O n e estimate i s that payrolls are inflated 10% by ghost workers a n d days paid but not worked.

Almost all corporations have a n internal audit unit. I t s r o l e a n d position in the organization varies: some r e p o r t to the CEO, some to the Accounts section.

Public Enterprise External Reporting

Most NFPEs submit quarterly MIS reports to their admmistrative ministries a n d the Monitoring Cell, comparing their actual revenues a n d expenditures with the approved budget. A f e w can only manage half-yearly reports, coinciding with the preparation o f revised estimates. Petrobangla a n d a f e w others r e p o r t monthly, with variance analysis. N o virement o f budget provisions from one i t e m to another i s allowed. However, NFPEs cover excesses by delaying paying their suppliers into the following year. Though they keep their books on a n accrual basis, this i s not always picked up by audit.

All corporations produce annual i n c o m e a n d expendture accounts a n d balance sheets. Some also produce cash flow statements. T h e y should b e subject to the same accounting standards for preparation o f corporate financial statements as private enterprises.

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M i n i s t r y o f Finance (Monitoring Cell) produces a consolidated account of the nonfinancial public enterprises each year for the IMF m i s s i o n in September. T h s shows a n economic classification o f the income statement, appropriations a n d financing, together with assets, equity, debt, employment, a n d some financial ratios. I t covers the last 10 years, i n c l u d m g the revised budget for the current year and actual audited data for the previous year. Public Enterprise External Audit

Apart from internal audit, NFPEs are subject to so-called ‘commercial audit’, i.e. audit by the C&AG (Commercial Audit Directorate). T h e statutes o f about 30 out o f the 40 corporations p r o v i d e that there should also b e audit by two chartered accountants (CA audit). This should b e mandatory in all revenue-earning corporations. T h e C&AG audit i s a compliance audit, as for G o v e r n m e n t ministries. T h e CA audit i s usually the same as for a private fEm, i.e. a compliance audit, based on a n appraisal o f the internal c o n t r o l system, a n d a financial statements audit. Recently, CAShave been applying international audit standards in these audits.
T h e NFPE b o a r d submits a short l i s t o f audit firms to i t s m i n i s t r y , from w h i c h the m i n i s t r y selects a n d appoints the auditors. N o firm can audit the same corporation m o r e t h a n three years running. Some ministries have blacklisted particular firms for fraud or negligence, but they have not been banned from auditing other corporations. T h e Government should exercise i t s responsibility as a shareholder a n d ensure reliable audit.

Recommendations are as follows:

0

Appoint directors and chief executives o f public enterprises on their business experience and track records. Extend the reward and punishment scheme to all PESwhich will continue in GOB ownership and link i t to performance contracts.

0

M a k e chartered accountant audit mandatory in all revenue-earning corporations and make it more effective.

Nationalized Commercial Banks
There are four NCBs. Together they are responsible for about h a l f o f the deposits a n d loans o f the banking system. T h e y have their own Acts and fall within the responsibhty o f the M i n i s t r y o f Finance. Unfortunately, they are exempt from the m a i n provisions o f the B a n k i n g Companies A c t a n d hence do not fall under the full jurisdiction o f the Bangladesh Bank.

T h e problems faced by the NCBs stem from poor governance. T h e y are criticized for insider lendmg, fraud and mismanagement. Moreover, gross interference in management by the

G o v e r n m e n t a n d labor unions c o m p o u n d the problems. For instance, the three-year computerization p r o g r a m i s moving slowly because o f opposition from union leaders.

Recent studtes have shown that these banks are not complying with Bangladesh Bank‘s requirements for provision against l o s s on their classified loans, nor the capital adequacy requirements (World B a n k 1998a). A study made in 1997 showed that about 45% o f their l o a n portfolio was classified as non-performing against w h i c h the provision shortfall amounted to Tk.38 bllhon in €9’99. Applying the provision shortfall against the n e t worth o f the NCBs would increase the already negative n e t worth to a massive negative Tk.71 billion. T h i s i s a potential l i a b h t y o f the Govemment.7 Only the steady rise in deposits - mainly due to the b u m p e r harvests a n d substantial remittances from abroad - has prevented a solvency crisis becoming a liquidtty crisis. So far, the G o v e r n m e n t has paid for bank losses by issuing bonds worth about Tk.50 bilhon. A further Tk.18 bilhon bonds are to b e issued by the G o v e r n m e n t in F Y O 1 . 8 Effectively, these are gifts to loan defaulters.

B a n k financial statements give a misleadtng picture,” and audit standards are low. B a n k branches m a y not b e audited at all. This i s partly due to b a d choice o f auditors (the Bangladesh B a n k l i s t of competent auditors includes 68 furms m a n y o f w h i c h do not have the special s k i l l s or capacity) a n d partly to inadequate terms of reference o f audit. For instance, the TOR should require at least 20 percent o f branches to b e audited, as in India. B a n k audit reports, even where the statement qualifies t h e m that b a d loans are under-provided, do not always spell out the effect o f this on the reported profit.10 Yet, no legal case has ever been brought against a n auditor by a depositor or shareholder. Nor has the Bangladesh B a n k ever disqualified a n auditor.

Recently, the ICAB issued U S 30 as the standard for b a n k financial statements. This requires disclosure o f movements in the provision for b a d debts. I t has now been issued as a Bangladesh B a n k circular a n d Gazetted. I t applies to all banks with effect from their statements for calendar year 2000. T h e B a n k m g Companies A c t needs to b e amended for this disclosure standard.

Recommendations are as follows:

Bring all banks fully under the supervision o f the Bangladesh Bank. Enforce the international accounting standard o n bank accounting.

7 Indeed, the same applies to the private domestic banks, w h i c h would equally have to b e rescued, requiring a further Tk.26 billion for 7 private domestic banks alone. In the Budget speech for 2000-01, i t was announced that the Government will reduce the percentage o f classified loans in the NCBs b y taking over the liabilities o f the public enterprises (IQbria 2000). 8 K i b r i a (2000). Bonds are issued and serviced b y the Government, but are assigned to NCBs against specific b a d loans a n d projects. They are included in b a n k balance sheets as investments and, p e r contra, as subordinated debt. As such, they are counted as p a r t of the bank’s capital a n d increase the capital adequacy ratio. 9 Specifically, (a) income accrual i s too liberal on non-performing loans, @) loan classification a n d disclosure i s too lax, provisioning too low, a n d investments are not valued at their market prices, thus overstating assets a n d capital, (c) pension liabilities are not calculated actuarially, (d) tax refunds a n d other receivables from the G o v e r n m e n t are kept in the balance sheet, even if there is no chance of collection, a n d (e) inadequate disclosure o f lending to directors, staff a n d their affiliates. 10 World B a n k (2000~).

Departmental Enterprises
These departments - Bangladesh Telegraph and Telephone Board (BTTB), Bangladesh Radway Authority, Bangladesh Post O f f i c e a n d the M i n i s t r y o f Food, D e p a r t m e n t o f Food a n d G o v e r n m e n t Flour M i u s - are anomalies. As they are enterprises, earning revenues that are related to their expenditures, they produce commercial accounts on a n accrual basis. However, as they have remained as government departments, consolidation of their accounts with the rest o f the government requires parallel cash accounts11 or conversion o f their accrual accounts back onto a cash basis. Then, for reports to the IMF, the cash flows of these entities are r e m o v e d from those o f the Govemment, as they are counted as public enterprises outside general government.

BTTB, for instance, introduced a commercial accounting system that operates alongside the traditional government cash accounting system. T h e budget for BTTB i s not published a n d budgetary c o n t r o l i s largely ineffective. BTIB accounts are 4-5 years in arrears. A c c o u n t i n g responsibhties are divided between the C A O , BTTB a n d the CAO, T&T. T h e i r respective

accounts do not agree. Financial and management reporting i s severely hampered. Financial management in these departments needs to b e reviewed a n d computerized.

classification. Procedures are supposed to comply with the Railway Code a n d State Railway General Code, but these are out o f print as w e l l as out of date.

I t has been m a k i n g large losses. Since 1998/99 the budget has been prepared under the n e w

T h e budget o f the Railway Authority has been p a r t o f the G o v e r n m e n t budget since 1985.

T h e Food A c c o u n t i s non-transparent. N e i t h e r the budget nor the accounts show operating cost, stock losses a n d subsides. RIBEC has made proposals for modernization o f budgeting a n d accounting systems of Food Department, Radway Authority a n d BTTB (RIBEC 1998b, c a n d d).

Recommendation i s as follows:

Restructure the organization and financial management o f the departmental enterprises to enable them to render accurate and timely forecasts and accounts o n both cash and accrual bases.

11

Per General Financial Rule 300.

6. Oversight of U s e o f Public Funds

External Audit Structural And Constitutional Issues
T h e Comptroller a n d Auditor General has a constitutional mandate to audit a n d r e p o r t on the p u b l i c accounts. Article 128 (4) says that the Auditor General shall not b e subject to the direction or c o n t r o l o f any other person or authority. I t i s said that generally there i s no political interference in w h a t h e chooses to audit and that h e has free access to records in most cases.’ Nevertheless, the C&AG i s a department within the M i n i s t r y o f Finance. There appears to b e a basic contradiction. D u e to h i s placement, the C&AG i s subject to the direction a n d c o n t r o l o f the M m i s t r y o f Finance. T h e C&AG’s budget i s subject to the same scrutiny as that o f ministries a n d divisions.

In other countries following a similar governance model, Auditors General normally have considerable operational freedom, though not complete financial freedom to create a n d fill posts.2 T h e C&AG’s budget (the part of i t devoted to audit) i s not subject to Parliamentary vote; i t i s ‘charged’ expenditure as in other Commonwealth countries. Since the c o m i n g of democracy in Bangladesh, the Auditor General’s primary duty has been to serve Parliament rather than the executive. However, h i s office i s s t i l l part o f the executive. Participants at the Oversight Conference p o i n t e d out the anomalies that arise from this: h i s lack o f administrative independence, inabdity to professionalise his office, conflict of interest through the retention o f a n accounting function, selection o f a n e w Auditor General without input from Parliament, etc. I t was recommended that the Auditor General b e made a n officer o f Parliament, that h e b e appointed on the recommendation o f the P r i m e Minister and PAC, and that his annual budget b e approved by the PAC. T h e UI< N a t i o n a l Audit O f f i c e was recommended as a m o d e l for the constitution o f his office. I n some other Commonwealth countries, the Auditor General prepares his budget a n d submits i t to the Speaker o f Parliament, where i t i s examined by the Public Accounts Committee, the C&AG’s main client. T h e Auditor General then has sole executive authority over the use o f his budget. In Bangladesh, t h i s would b e advantageous. I t would secure the resources needed by the C&AG, visibly increase his independence, and add to Parliament’s ‘ownership’ of h i s office. There i s no Constitutional bar to this change (Soliman 2000). However, this should b e considered only after accounts a n d audit are separated.

T h e separation of the audit function implies that the accounts a n d audtt personnel, who form one interchangeable cadre above the level o f Superintendent, should b e separated into two cadres. How can a n auditor b e independent a n d impartial w h e n auditing the work o f h i s cadre colleagues, or even h i s own earlier work in a n accounts post? E v e r y donor i s w o r r i e d by this ‘promiscuity7 a n d has pressed for separation. In practice there i s some defacto separation o f the 10,000 accounts personnel, who all come under the Controller General o f Accounts, from the 3,000 audit personnel, who fall under the nine directorates of audit. Only the C&AG himself
1 World Bank (20009. There are a few special funds that are not normally open to the C&iG, such as the extrabudgctary funds mentioned in section 3.2. 2 There i s a strong case for building up the audit directorates because of the high workload. Some 40,000 units spend public funds, comprising 22,718 units within the public sector a n d some 18,000 NGOs receiving public grants. There are o n l y about 3,000 auditors, and they can cover only about 16% of the total each year. T h e shortage i s most serious at the management level, where there are only 50 cadre officers.

heads both hierarchies. T h e selection o f auditors for audit assignments i s said to exclude any officer who h a d any involvement in the accounts. T h e responsible D i r e c t o r o f A u l t prevents any possible conflict o f interest. However, this does not reassure those outside the Government: there i s no perception o f independence.

Separation was legislated as long ago as 1983.3 I t was never implemented. T h e resistance to separation i s due partly to the time and trouble o f doing it, involving amendments to the Constitution a n d the C&AG (Additional Functions) Act, but mainly to opposition from accounts personnel who fear loss of opportunities of transfer into coveted audit posts, w h i c h have m o r e travel a n d promotion prospects as w e l l as the p o w e r and privileges that come with b e i n g a n auditor. Nevertheless, i t i s widely agreed that separation i s necessary, a n d that the only questions are w h e n a n d h0w.4 Separation has been made in almost every other country in South Asia in w h i c h accounts and audit were formerly combined (see box). I t i s recommended that authority b e vested in a n independent person to study this material, to undertake a local stakeholder analysis: to formulate a plan in negotiation with all the interested parties that would b e in the overall national interest, a n d to supervise i t s implementation. T h e output o f this appointment should not b e another report. I t should b e total separation o f audit from accounts, actual a n d perceived. I t will b e necessary for all parties to look for the national interest.

T h e C&AG i s appointed by the President o f the Republic on the advice o f the P r i m e Minister without consultation with Parliament. There is no Constitutional bar to the Prime Minister tendering advice after with the Public consultation Accounts Committee and their consideration o f the nominee. I f (say) a two-thirds majority o f the PAC failed to approve the nominee, the Prime Minister could reconsider. This c o u l d b e written into the Parliamentary Rules of Procedure. The Oversight Conference recommended that the Auditor General b e appointed on the recommendation o f both the P r i m e Minister a n d PAC.

Box 3

Separation of Accounting and Audit in South Asia
In S r i Lanka, there has been separation o f accounts and audit for 70 years. The Donoughmore Constitution o f 1931 changed the designation o f the Colonial Auditor to Auditor General and made that office directly responsible to the legislature. In 1976-80, India also completely split i t s accounts and audit services at the union level.

Accounts and audit are also separate in Nepal, Bhutan and t h e Maldives.
In Pakistan, after receiving t h e inputs o f a High L e v e l Committee which examined t h e financial, legal and administrative implications, the Government has drafted legislation to complete the separation o f accounting and auditing and t h i s i s expected to be enacted shortly

Ordinance XXVIII of 1983, which w s an amendment to the C&AG (Additional Functions) Act, 1974, allowed the a Government, by administrative direction, to assign the accounting function to ministries and departments (called ‘departmentalization’). 4 A Committee looked at this in 1995 and made detailed proposals for separation, which were abandoned. Participants at a Workshop on Public Sector Auditing on June 15, 2000 agreed that a program for separation i s in the national interest and should be planned. ‘The Public Administration Reform Commission (2000) has recommended separation, and that the C&AG be left with audit functions only, Vol.1, para.2.12. 5 Stakeholder analysis i s a definition of who would gain, who would lose, and what adjustments could be made so that everyone gains. Where there i s a net national gain, a win-win solution i s possible.
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T h e C&AG's tenure i s protected in the same way as that o f a Judge of the Supreme Court. H e cannot b e dismissed at political d However, the Constitution requires the C&AG to . retire a t the age of 60. Since a C&AG i s usually appointed only at the age of 57, this leaves a short 3 years for him to realize his vision. M o r e stability in t h i s office i s needed. I n other countries, the Auditor General i s appointed for a f B e d t e r m (Thailand 5 years, I n d i a 6 years, Canada 10 years). In Bangladesh t h i s would require a Constitutional amendment. T h e Oversight Conference recommended that the Auditor General b e appointed for a fixed t e r m of five to ten years. This would b e subject to termination on the same grounds for removal (such as incapacity) as at present.

T h e Auditor General i s constitutionally required to submit h i s reports to the President (who t h e n causes t h e m to b e laid before Parliament, where they are referred to the Standing C o m m i t t e e on Public Accounts). U n d e r the current Rules o f Business, the C&AG has been required to submit his report through the P r i m e Mtnister's Office. Since this O f f i c e i s a n auditee, this routing i s inappropriate. All responsibihties can b e m e t if the Auditor General submits h i s reports duectly to the President, with copies sent simultaneously for i n f o r m a t i o n to the P r i m e M i n i s t e r a n d Parliament (Speaker). T h e public would b e i n f o r m e d through PAC meetings if these are opened to the media and the public (see section 6.2 below).

i s no external independent audit. I t i s unfortunately true that there are allegations against auditors that they fake subsistence allowance claims, etc. E v e n if there were no basis for these allegations, i t i s imperative that the supreme audit institution o f the country, w h i c h i s a pillar o f accountability, b e subjected to the same independent scrutiny as all other branches o f the state.

At present, the C&AG accounts are 'audited' by the C&AG's internal audit unit. There

Participants a t the Oversight Conference agreed that the Auditor General should b e above suspicion, so h e needs strong internal controls and an independent audit r e p o r t on his department. Audit o f the audit agency should not b e carried out by a n auditee, as t h i s would compromise the Auditor General's independence. In Canada a n d Bhutan, for instance, private accounting firms are appointed to carry out the audit each year. I t was recommended that this question b e answered in Bangladesh at a n early stage. Audit should b e conducted by professional external auditors with good experience in government sector audit a n d having no confhct o f interest that might influence their audit o f the C&AG Department. T h e P r i m e Minister c o u l d select t h e m in consultation with the C&AG.

,

Audit Methodology

Audit methodology has been i m p r o v e d with assistance from a U N D P - s u p p o r t e d project (Strengthening the O f f i c e of the Auditor General - STAG) a n d from a D F I D - s u p p o r t e d project (Reforms in G o v e r n m e n t Au&t - RIGA). T h e S T A G project has brought in audit standards based on those by INTOSAI. These were officially adopted in February 2000.6 T h e RTGA project has updated the Audit Code, w r i t t e n manuals for civil, local a n d revenue audits a n d given training in these areas.
Since 1997, the C U G has maintained a 'Grievance Cell' in his office. This i s o p e n to any p u b l i c official to bring his grievance without going through formal channels. G o v e r n m e n t

6

C&AG (1999).

suppliers can also lodge complaints. Most grievances are on pay a n d allowances. Some are o f a w i d e r nature. In the f i r s t three years, 453 complaints were received a n d 252 were disposed of.

T h e audit process starts with audit ‘obsemations’ (queries or apparent irregularities) in Inspection Reports to the auditees. A f t e r correspondence with higher levels up to the responsible minister, serious unresolved issues go into the C&AG‘s final report. There were 6,761 in FY97, but only 1,109 in F Y 9 8 w h e n higher thresholds o f materiality were adopted. Issues are categorized as improprieties, loss/damage/wastage by negligence, a n d d f u l theft/embezzlement/ fraud/misappropriation. T h e C&AG A n n u a l Performance Reports highlight some o f the most serious and show the total amount recovered a n d adjusted ( m i s s i n g documentation obtained) as a combined figure, e.g. Tk 8.3 billion in F T 9 8 . This was about 1.5 percent o f all expenditure, a n d m a n y times exceeded the cost o f audit, about Tk.0.3 bdhon. T h e table b e l o w shows the widespread incidence o f irregularities o f all types. T h e C&AG i s required to see that expenditure has been incurred “with due regard to the

Audit Obst

Table 1

Ministries

7
Communication Defense Education Energy & h h e r a l Resources Environment Pr Forest Establishment Fisheries & Livestock Finance

5
5

Food

Industries Jute Land L o c a l Govement, Rural Dcvelopmcnt & Cooperativc

Ho~ising Public Works eL

3 1201 102 36
30

8 24

750
346 3 320

9

I

Textiles Water Resources

Shipping Post & ‘I‘elecomm

54

1

55 125 16 17
22

49 1 14 2 8

1

representative a n d does not reflect the ovei Impropriety: cases o f violation o f rules and regulations or budgetary stipulations. Loss, Damage, Wastage: occurrences that are caused by the negligence o f duties or inefficiency o f management. Theft, Embezzlement, Fraud, Misappropriation: cases o f loss due t o willful malpractice by public functionaries. Source: Annual Report o f the O f f i c e o f the Comptroller & Auditor General, Bangladesh, 1999

5 188 5 2

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avoidance o f waste a n d extravagance”. H e has been trying to increase the proportion of performance (value-for-money) audit for the last f e w years. At his instigation, the PAC requested the C&AG to extend performance audits to at least 1 percent of the public sector. T h e STAG project i s completing a performance audit manual a n d a trainers manual, undertaking pilot performance audits a n d giving personnel training. About 100 ‘special audits’ have been completed a n d reported to the PAC. T h e quality o f these audits s t i l l falls short, but they are a n encouraging development. T h e cadre officers and staff with the special s k d l s required for a performance approach (particularly in the absence o f performance budgeting a n d accounting) need to b e brought together and developed in a dedicated unit rather than scattered throughout the department a n d b e lost by indiscriminate transfers.7 Recently the C&AG has established a Performance Audit Unit. T h e experience of N e p a l in establishing performance audit m a y have useful lessons for Bangladesh a n d should b e studied.

Audit Management

Audit planning needs a n e w approach. At present, there are no permanent teams for specific agencies or types o f audit. Audit planning mainly ensures that all auditors get a chance for field visits. Some areas are entirely neglected, e.g. revenue audit. G i v e n the importance to the G o v e r n m e n t o f improvingrevenue yields, this i s a serious gap.
W h i l e the choice o f u n i t s and special subjects to b e audited i any year must remain the n prerogative o f the CBAG, it would b e wise to invite the Parliamentary committees, particularly the PAC, to suggest audits in areas in w h i c h they are especially interested. This would a d d to parliamentary interest in the C&AG’s reports, a n d increase the likelihood o f debate a n d follow

UP.
Additionally, auditors need to join the i n f o r m a t i o n revolution a n d make use o f computers in their work, especially their audit planning, reporting a n d follow up. T h e STAG project has started a computerized records database.

Training and Professional Development

T h e main p r o b l e m with the C&AG audit directorates i s not so m u c h the methodology, or lack o f independence, but their lack oj-stafskilh, supervision and qua& control. E v e n after years o f technical assistance a n d ‘capacity building’, the quality o f audit reports i s widely criticized. This i s partly a consequence of the integration of the accounts a n d audit cadre, because auditors are trained a n d are t h e n transferred to accounts posts. Sirmlarly, officers are trained in (say) performance audit, then posted to teams where they cannot use their training.8 There i s a general lack o f integration o f training with audit planning. I t i s probable that m u c h o f the training investment in the past has been wasted by not training officers in the job s k i l l s required by their posts and retaining them in those posts. Training i s also subject to all the bureaucratic rules a n d procedures of the Ministries of Finance a n d Establishments. T h e separation o f the audit cadre from c o n t r o l by these ministries, as recommended above, would b e a f i r s t step towards
7
8

World Bank (20009. Out of 90 officers who went through audit training since 1982, only 18 are s t i l l working as auditors. Out o f 18 who received training in performance audit, only one has been able to use that training (World Bank 20009.

formulating a strategic p l a n for the audit department including a coherent training program. At the Workshop on Public Sector Auditing, participants favored development o f a strategic p l a n for the modernization o f the C&AG’s Department and application o f international standards of audit. I t i s recommended that the C & A G senior management group undertake, together with FIMA a n d a representative o f the M u u s t r y o f Establishment, a survey o f training needs over the n e x t five years (1) for the accounting function, (2) for the internal audit and other accountabhty support functions, and (3) the external audit function. T h i s would t h e n b e the base for a strategic p l a n for the department (13,000 personnel).

T r a i n i n g objectives should include gaining a management perspective, s o those auditors would b e able to assess a n d r e p o r t on the impact of irregularities on achievement o f the goals o f the auditee agency. T h e y should b e able to apply concepts such as risk a n d materiality.

There i s little understanding at the operational level of the auditing standards recently adopted by the C&AG (1999). FIMA should provide courses in their practical application.

Training needs to b e integrated also with other personnel policies such as promotion. At present promotion through the grades depends on seniority a n d absence o f adverse appraisal reports. There i s only one promotion bar (written examination). Audit personnel are not generally interested in being trained and have to b e p a i d a n inducement. This i s possible where aid partners provide funds, but i s not sustainable. With autonomy from the Ministry o f Establishment, i t would b e possible in a closed audit cadre to base promotion m o r e on going through prescribed courses a n d a rotation o f practical experience, a n d not j u s t years o f service. Entry-level qualifications should also b e re-examined; a t present, most audit personnel have no financial background.

Audit Reports
Several reports are made by audit directorates each year, as follows:

~~

* T h e s e c o v e r 45 ministries a n d divisions, or parts o f ministries/&visions.

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T h e timeliness of audit reports has i m p r o v e d recently,” a n d should i m p r o v e further now that the C&AG has his own printing unit and i s no longer dependent on the G o v e r n m e n t Printer. With m o r e resources a n d better planning, the C&AG should b e able to reduce the backlog o f unaudited projects. Resources should include provision to hire professional firms o f accountants, especially in public enterprises, nationalized commercial banks a n d local government institutions. In some cases, joint public/private teams m a y conduct audits. This would not only reduce the backlog, but also would infuse valuable s k i l l s into the C&AG office a n d expose commercial auditors to the wider scope o f government audit. At a Workshop on Accountancy Profession a n d Education on June 12, 2000, there was some support for greater use o f chartered accountants, a n d for allowing practical experience in the audit durectorates of the C&AG O f f i c e to b e accepted by ICAB as sufficient to meet their practical experience requirement for admission.

Hitherto, reports have been in a standard short form as follows: “My senior officers have examined the Finance Accounts [or as appropriate] and to the best o f my knowledge they are correct”. T h e C&AG i s now considering the form o f his r e p o r t to comply with the newly issued G o v e r n m e n t Auditing Standards (C&AG 1999). A qtlal@ed opinion should b e given if h e disagrees or i s uncertain about one or m o r e material items in the financial statements, or a n adverse opinion where h e believes that the statements are not fairly stated. I f the C&AG i s unable to g v e a n opinion on the financial statements due to uncertainty or to a restriction placed on the opinion, i.e. a statement that h e cannot give a n opinion, scope o f audit, h e gives a disclaimer together with reasons.

of

T h e PAC has said that i t does not w a n t audit merely to identify w h a t w e n t wrong but also to suggest remedies. Some remedies are obvious. In other cases, this would require not only competence in the systems approach to audit but also sufficient experience in systems analysis a n d redesign to b e able to make good recommendations. Ths i s a long way from the current reality. I t would b e better, for the present, that the emphasis b e placed on grouping a n d prioritizing irregularities and audit observations according to their impact on government objectives. I t i s up to Ministry/Division Secretaries to appraise their weaknesses a n d take corrective action, including use o f the Efficiency Unit b e i n g set up in Finance Division where necessary. Secretaries should remain solely accountable as Principal A c c o u n t i n g Officers. Prioritization o f audit objections would increase their importance a n d add to pressure for response from the executive, w h i c h i s s t i l l very disinterested.10

T h e C&AG’s reports are restricted until they have been cleared by Parliament (even though their contents are o f t e n leaked to the media). T h e y have to b e sent to the President, who places t h e m before Parliament, w h i c h refers t h e m to the PAC. I f PAC meetings were open to the media, as proposed below, this would b e an appropriate point for the C&AG reports to b e made available generally. T h e y c o u l d b e published promptly on the Internet, as in a growing n u m b e r o f countries. Alternatively, they could, with parliamentary approval, b e published as soon as they are tabled in the House.

9

All ministry audit reports for FY98 (ie. the year to 30 June 1998) and Appropriation and Finance Accounts reports for FY98 and FY99 were ready for submission to the President in December 2000. The target i s to complete reports on all ministries for FY99 and reports for FYOO on n i n e key ministries by June 2001. 10 The PAC reported the average delay in taking preliminary steps to meet audit objections, ranging from 19 months in Ministry o f Local Government to 148 months in Ministry of Food (PAC Third Report, p.21).

Recommendations are as follows:

Separate the accounting a n d a u d i t i n g functions in a w a y t h a t would prevent a n y c o n f l i c t of interest, actual or perceived T h e Government s h o u l d consider to form a high level committee (not t o s u b m i t another report) t o find out t h e ways a n d means a n d m o n i t o r the i m p l e m e n t a t i o n o f this r e c o m m e n d a t i o n within a definite timeframe.

.

I n v o l v e the PAC in the selection process o f the A u d i t o r General a n d a m e n d t h e Rules o f Procedure o f the Parliament to this effect.

Appoint the A u d i t o r General on a f i x e d tenure o f at least 5 years.
T h e Comptroller a n d A u d i t o r General should prepare a n E x e c u t i v e S u m m a r y o f h i s R e p o r t highlighting the m a j o r findings. I t should m e m a d e m a n d a t o r y for t h e Government to take corrective actions within a stipulated time. T h e p u b l i c s h o u l d b e i n f o r m e d of the m a j o r findings a n d the actions t a k e n by t h e Government. A s p e r Article 132 o f the Constitution o f Bangladesh, the Comptroller a n d Auditor General to s u b m i t h i s reports to the President. I t should b e m a d e m a n d a t o r y to s u b m i t the report to the Parliament, within G days from t h e date o f s u b m i t t i n g o t h e report to the President. Increase t h e p r o p o r t i o n o f performance a u d i t through a special unit o f t r a i n e d officers in the C&AG Office. I n s t i t u t e independent a u d i t o f the a u d i t department. I n s t i t u t e revenue audit. Prepare a strategic p l a n for the Audit D e p a r t m e n t a n d base personnel t r a i n i n g a n d transfer policies on the strategic plan. C o n d u c t t r a i n i n g courses on t h e n e w Government Auditing Standards. Increase interaction with private f i r m s o f auditors a n d the ICAB. Set up a n Audit Committee in each a n d every M i n i s t r y a n d g o v e r n m e n t department involving appropriate professional personnel. E n s u r e t h e financial a n d operational independence o f the A u d i t o r General by r e m o v i n g h i s department from administrative a n d financial c o n t r o l by t h e M i n i s t r i e s o f Finance a n d Establishment. However, this s h o u l d b e t a k e n as a second-generation r e f o r m a n d s h o u l d b e considered only after accounts a n d a u d i t i s separated.

Role o f Parliamentary Committees

Parliamentary surveillance o f the activities o f Government i s a pdlar o f p u b l i c accountability under the Constitution. I t could b e said that the development o f parliamentary surveillance i s one o f the m a i n indlcators o f progress in a nascent democracy. A UNDPsupported project, Strengthening o f Parliamentary Democracy, i s working with the Parliament on development and modemization o f the Parliamentary institution.

This section focuses on the functions, structure, powers and processes of Parliamentary Committees (PCs) with regard to public expenditure control.11 T h e principal PCs for t h i s purpose are the Public Accounts Committee (PAC), Public Estimates Committee (PEC), Public Undertahngs Committee (PUC) a n d 35 standmg committees on individual ministries (SCMs).
Parliamentary review o f the budget before i t i s passed was discussed in page 27 Review after legslation m a y b e before or after expendture i s incurred. As n o t e d in page 29 above, the PEC has been active in investigating procurement transactions before commitments or expenditures were made. Generally, however, review i s expostfacto. T h e PAC review i s not only after the event, but after the C&AG has reported on it, w h i c h m a y b e years later. There i s a backlog o f 400 audit reports a n d accounts. This delay reduces the deterrent a n d corrective influence on the executive as, by the time particular transactions are examined, those responsible have been transferred, or retired or died, and escape having to appear before the PAC. Accountability delayed i s accountability eroded.

T h e division o f functions a m o n g the Committees i s not very clear. T h e PAC i s mainly concerned with the legtimacy of public expenditures, that m o n e y i s used for the purposes intended a n d that the regulations were followed. This i s also within the mandate o f the SCMs. T h e PEC mandate i s to examine the efficiency a n d economy o f expenditures. T h e y need not h i t themselves to official policies underlying the expendltures a n d can make recommendations on alternative policies that would b e m o r e efficient. T h e PUC examines the non-bank p u b l i c enterprises, but these are also within the ambit o f the other financial committees a n d the respective SCMs. There i s no overall coordmation in the choice o f issues examined and there have been some overlapping inquiries. A Liaison Committee comprising all the Committee chairmen a n d with the Speaker as Chairman was recommended at the Oversight Conference as a coordmating device. This Committee would also arbitrate on c o n f i c t s o f jurisdction.

Composition of Committees

I n the present Parliament, the three financial committees a n d almost all the SCMs are chaired from the ruling party, a n d membership i s usually divided 60% to the r u h g party a n d 40% to opposition parties. p h e P A C has15 members; other Committees have 10). T h e f o r m e r practice of having Ministers chair Committees has been discontinued. This s t i l l leaves it open to
11 This

excludes actions of individual MPs, such as raising questions in the House.

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Ministers to s i t as members o f Committees other than the three financial committees from w h i c h they have always been excluded by the Rules. hlinisters can s t i l l b e members of the SCMs a n d this reduces the freedom o f backbenchers t o raise matters o f public interest. Consideration should also b e given to appointing members of the opposition as chairmen o f committees.

T h e most important committee for accountability i s the PAC. T h e PAC c o u l d b e chaired by a n opposition MT so as to ensure the perception o f independence from the party in power.

Powers and Resources of Committees

Committees have considerable investigative powers. T h e y can send for persons, papers a n d records12 a n d examine witnesses under oath. T h e y also have as m u c h access to the C&AG as they need; though only the PAC so far has availed itself o f h i s services. T h e C&AG i s Parliament's m a j o r informant. Neither the media nor civil society/private sector groups are a source o f i n f o r m a t i o n for the PAC, unlike in western parliamentary systems, where employers, trade unions, NGOs and professional associations increasingly interact with the parliamentary watchdogs.

Committees vary widely in their level of activity - the current PAC h e l d 94 meetings over a p e r i o d o f 37 months while the Post and Telecoms Committee h e l d only 15. T h e level o f activity, a n d even m o r e the level o f effectiveness, depend largely on the character o f the chairman a n d the research and secretarial support h e can beg or borrow. All PCs are grossly handicapped by lack o f resources. This can b e contrasted with the public funds recovered following investigations; the present (Seventh Parliament) PAC recovered over Tk 2 bilhon as a result o f i t s f E s t 34 meetings.13 Following a needs assessment, suitable accommodation should b e p r o v i d e d for the Institute o f Parliamentary Studes a n d at least the three financial standmg committees. All members should have m o d e r n facilities for communication a n d research, such as individual cubicles equipped with computers having Internet access a n d standard word processing, email a n d spreadsheet applications, a n d adequate research assistance.'4 Chairmen should have secretarial assistance so that proceedings can b e recorded a n d minutes promptly d r a w n up a n d circulated. At a Workshop on Parliamentary Control of Public Expenditure (June 4, 2000) a n d the International Conference on Oversight Functions (September 10-12, 2000) the highest importance was attached to the provision of technical staff a n d facilities for research a n d follow up on Committee recommendations. T h e Public Administration R e f o r m Commission has also emphasized this.15

Transparency
There i s a serious transparency issue. T h e Rules o f Procedure require that meetings b e h e l d in camera. M u c h o f w h a t the PCs do remains unknown a n d unnoticed by the p u b l i c a n d even by other M T s . E x c e p t for the PAC, n o n e of the PCs has issued regular reports to the
Some Committees impound large numbers o f ministry files for long periods of time; others require copies o f files. Third R e p o r t o f the Standing C o m m i t t e e on Public Accounts (1998), p. 7. 14 Rccently, a C o m p u t e r User Center has been set up for MPs to have I n t e r n e t access a n d individualemail accounts. 15 Public A d m i n i s t r a t i o n R e f o r m Commission (2000), para. 8.30. .
12

13

House, such as a n annual performance r e p o r t covering i t s activities, findings, recommendations a n d results. L a c k of resources i s one reason for this. A n o t h e r reason i s that some Chairmen misunderstand their constitutional role a n d deal only with departmental officers to whom they issue 'directives'. T h e Workshop on Parliamentary Control emphasized that PCs are not executive agencies and their decisions are only recommendations. I f they are ignored, w h i c h has frequently been the case, their recourse i s through the House, e.g. by asking the M i n i s t e r in charge to take action. T h e y m a y ask for Secretaries to r e p o r t back to them, but if they fad to c o m p l y PCs have no enforcement powers. I f they were given enforcement powers, i t would b e a takeover o f the executive branch o f government. As Committee members gain experience, a n d as Secretaries are called to explain each year's irregularities, the Committees can follow up on their previous recommendations and ask w h a t progress has been made. However, they need to have a simple system of monitoring a n d recording actions taken, recoveries a n d adjustments made, etc. T h e Oversight Conference recommended that a n annual performance r e p o r t should b e required from each PC chairman to the Speaker, and the reports o f the financial committees should b e debated in the House. In addition, all PAC meetings should b e open to the me&a a n d public (possibly without television cameras i f these would introduce undue political partisanship into the meetings) and the Rules should b e amended accordingly.

Parliamentary committee reports do not close the cycle o f accountability. T h e executive should take action on them. I n other countries, t h i s i s formalized. T h e executive should b e required by l a w to respond to PAC reports within a fixed period.

Recommendations are as follows:

Opposition MP to chair the PAC. Eliminate the backlog o f reports with the PAC. Clarify the jurisdiction o f parliamentary committees with regard to public expenditure control, and set up a Liaison Committee. Ministerial Committees should ask the concerned ministries to submit the Ministries' Annual Performance Reports along with financial statements including budgets and budgetary control statements. Undertake needs assessment and improve facilities o f parliamentary committees and Members. M a k e parliamentary committees more transparent to the House and, particularly the PAC, open to the media and public. Oversight by Donor Agencies

Donors are m a j o r contributors to public funds.16 T h e i r fiduciary requirements vary widely. Where donor agencies support defined projects, they have to assure their own stakeholders that their funds are used for legitimate project purposes, a n d efficiently a n d
16 Their disbursements in F Y O O amounted to $1,575 million. Most of this was aid to identified projects ($1,150 million), with IDA, XDB and Japan as the major donors (ERD data).

effectively.” This has to b e balanced against the need for recipients to develop their own project management capacity a n d to take ownership and responsibdity for fiduciary outcomes. Most bilateral donors, such as UI<-DFID, themselves purchase planned inputs such as consultants, training a n d equipment, put their own contractors or consultants to manage the projects, a n d require accounts, reports and audits to comply with their own rules. Most multilateral donors, on the other hand, such as World Bank, Asian Development B a n k a n d UNDP, are moving toward national execution. This puts formal responsibility for management in the hands o f the i m p l e m e n t i n g agencies, w h i c h manage projects in accordance with their own legal a n d regulatory frameworks. In practice, governments often prefer to delegate foreign procurement back to the donor, both to save expense and to protect themselves against domestic pressures. Also, national execution i s normally accompanied by capacity building efforts that increase fiduciary assurance while leaving responsibdity with national project directors.

At present in Bangladesh, almost all aid i s project-based a n d ring-fenced to a greater or lesser extent. Assurance that IDA funds, for example, are used for developmental project purposes i s obtained through the receipt o f timely project accounts a n d independent audit reports, including audits o f statements o f expenditure a n d special accounts where applicable. E a c h credit agreement contains standard financial covenants that the implementing agency shall maintain records a n d prepare annual accounts in accordance with sound accounting practices to reflect the operations, resources and expenditures of the project. T h e implementing agency i s responsible for project management, including appointment o f a n acceptable auditor. IDA makes disbursements (or reimbursements) only for eligible project expendtures. I f acceptable accounts a n d audit reports are not received within six months o f the e n d o f the financial year, disbursements m a y b e suspended.
Earlier accounts would provide earlier warning signals. I n t e r i m unaudited accounts

should b e submitted for the f i r s t six months o f operation within a further two months. This would provide warning o f problems in month 8 instead o f month 18-t.
In most World B a n k projects, the auditor i s the C&AG’s Foreign A i d e d Project Audit Directorate (FAPA). Where a project earns revenue or i s run by a revenue-earning agency, however, a private audit firm i s required for entity audit. Almost all audit reports are received on time. T h e p r o b l e m i s rather the low quality o f C&AG audits (see section 7.1 below), their late start (only after the financial year ends), a n d their focus on compliance with G o v e r n m e n t regulations, neglecting World B a n k concerns such as the eliglbhty o f expenditures according to l o a n agreements. There i s little or no audlt o f statements o f expenditure. World B a n k financial staff have p r o v i d e d training to FAPA auditors. O n e training target should b e that FAPA can undertake a review o f internal controls and issue a management letter six months after a project starts.

Auditors should b e required to submit copies o f their reports by the required dates, or risk disqualification from re-appointment. All audit reports should b e reviewed by specialist staff a n d task/team leaders in donor agencies a n d comments sent to the implementing agency w i t h one month. T h e frequency o f m i s s i o n s a n d the level o f supervision should b e related to the level o f fiduciary risk. At present the audit conducted by FAPAD staff i s compliance-based. FAPAD
17 Even though this allows the recipient to divert its own resources into uses that may be very unwelcome to the donor.

was p r o v i d e d project assistance of about Taka 30 d o n by the World B a n k a n d UNDP for capacity development under the Sixth Technical Assistance Project. U n d e r the project, a n audit manual was prepared and some staff were trained. Most o f the trained staff were transferred a n d the capacity i s almost lost. However, there i s considerable development in the quality o f audit with regard to formats a n d presentation o f reports. FAPAD i s now submitting short-form a u l t reports a n d management letters. T h e y also provide separate opinions on Project Financial Statements, S O E s a n d Special Accounts. However, there i s a perception amongst the donors that the quality o f most project audits i s low, with f e w exceptions. A discussion i s going on amongst the donors to encourage the Government to use private sector auditors in project audits. In some projects, there are provisions to conduct performance/operational audits using private sector a u l t o r s . To reduce the pressure on C&AG's scarce resources a n d increase the coverage o f audit o f 22,000 auditable units, C & A G and the Government m a y consider appointing private sector auditors for project a u l t s . Initially, this m a y start with the audits of projects w h i c h are implemented by parastatals, public corporations a n d enterprises.

T h e World Bank's Financial Management Initiative (launched in July 1998 under the name LACI) has built up the numbers and professionalism o f financial and procurement staff a n d has added to existing operational policies. E v e r y n e w project should have specialized staff for financial management a n d procurement on the task team from preparation to completion. T h e Financial Management Specialist assesses and reports on the project financial management arrangements at the time o f project appraisal a n d certifies i t s adequacy (or develops with the implementing agency a n action plan to remedy inadequacies), reviews a n d certifies the adequacy o f financial reports, monitors compliance with financial covenants, a n d initiates necessary actions on a u l t reports, with guidance and quality c o n t r o l from R e g o n a l Financial Management Advisers. T h e Procurement Specialist has similar responsibilities with regard to project procurement. Quarterly Project Management Reports ( P M R s ) are required, including e x p e n l t u r e statements and projections, physical progress/output reports a n d d e t d e d procurement data. I f these are certified as satisfactory by financial a n d procurement specialists a n d by the team leader, disbursement i s made without the need to submit extensive documentation. However, meeting the full PMR requirements has p r o v e d difficult: only three 1 projects (out o f 1 projects w h i c h were approved after July 1, 1998 for w h i c h PMR-based disbursement was made effective) have PMR-based l s b u r s e m e n t s o far. T h e B a n k i s currently reviewing PMR requirements with a v i e w to their simplification. M o r e specialist staff (or leveragmg their efforts with consultants) a n d m o r e pro-activity c o u l d also increase this

proportion.

N a t i o n a l policy makers spend considerable t i m e attempting to fulfd donor requirements a n d coordinate donor actions.18 I t i s now generally agreed that establishing duplicate procurement, accounting, reporting a n d audit systems in a country does not contribute very m u c h to the development of local systems. T h e i r impact on capacity building can even b e negative: p r o g r a m implementation units established by donors m a y suck the m o r e able national personnel out o f government service to meet donor accountabihty needs a n d weaken government accountabihty.

T h e OECD Development Assistance Committee has not, so far, been able to resolve this problem. O n e response by m a j o r donors has been 'partnership' between donors a n d host governments, such as the UN's Development Assistance F r a m e w o r k a n d the World Bank's
18

See, e.g. RIBEC 1999c.

Comprehensive Development Framework.19 A m o r e radical m o v e i s t o w a r d sector-based ‘common pool’ aid a n d away from project ‘ring-fenced’ aid. This depends on sector donors disbursing their funds in agreed shares into a c o m m o n pool on the basis o f achievements o f planned ozlpzlts, and agreeing on formulae for linking cumulative disbursements to project indicators.20

In Bangladesh, the f i r s t multidonor sector-wide program i s the H e a l t h a n d Population Support Program, w h i c h started in 1998. T h e World B a n k leads a consortium o f donors, who disburse funds on pre-agreed percentage shares into a pool h e l d by the World Bank. T h e G o v e r n m e n t i s reimbursed from the pool in accordance with i t s eligble e x p e n d t u r e on the program, i.e. disbursements are based on inputs, rather than outputs. There i s a m a j o r p r o b l e m in procurement, w h i c h has recently been recognized as a m a j o r constraint i m p e d i n g program implementation. All procurement under the program i s the responsibility o f the M i n i s t r y of H e a l t h a n d Family Welfare, a n d has to follow World B a n k guidelines. T h e prior review o f tender documents for contracts o f $0.3 million or m o r e ($0.1 d o n in training contracts), a n d mandatory post review of all contracts involves the World B a n k in the process. However, there are long delays. There are also problems o f verifymg the Government’s eligible expenditure. T h e au&t r e p o r t for FY99 indicates substantial discrepancies between the financial statements reported by the Management Accounting Unit, the Chief A c c o u n t i n g O f f i c e r a n d L i n e Directors. Donors are also culpable: only four out of 11 donors h a d p r o v i d e d disbursement i n f o r m a t i o n within three months o f request.21 I f these problems can b e addressed, this approach c o u l d b e extended into other sectors such as education.

Recommendations are as follows:
0

E a r l y w a r n i n g o f f i d u c i a r y p r o b l e m s through i n t e r i m audits o f i n t e r n a l c o n t r o l s a n d i n t e r i m u n a u d i t e d accounts. Extensive consultations s h o u l d b e m a d e a m o n g s t t h e d o n o r s a n d also with t h e G o v e r n m e n t on donor f i d u c i a r y requirements to arrive a t a consensus t o w a r d s r e d u c i n g t h e transaction cost o f a i d management.

0

0

C&AG, G o v e r n m e n t a n d t h e donors m a y start a d i a l o g u e to use p r i v a t e sector auditors for audits o f p r o j e c t accounts. Initially, t h i s m a y start with t h e a u d i t o f p r o j e c t accounts, w h e r e projects are i m p l e m e n t e d by statutory g o v e r n m e n t organizations. However, t h e C&AG s h o u l d b e a l l o w e d to use p r o j e c t f u n d s to
a p p o i n t t h e auditors a n d act as t h e regulator a n d q u a l i t y c o n t r o l l e r o f p r o j e c t audits.

0

Donors to s u p p o r t p r a c t i c a l t r a i n i n g in t h e F o r e i g n A i d e d P r o j e c t Audit D i r e c t o r a t e in r e l a t i o n to t h e agencies i m p l e m e n t i n g t h e projects t h e y support.
Allocations for supervision to b e b a s e d m o r e e x p l i c i t l y o n r i s k assessments.

0

19 The CDF i s intended to put the World Bank‘s country assistance strategy and other donor country programs into a medium-term framework that i s driven by the host country. The philosophy i s one of openness and partnership. I t i s currently being piloted in a few countries. *(I Ravi Kanbur and Todd Sandler (1999) A Radical Approach to Development Assistance, in Development Outreach, Vol. 1, No. 2 (FaU), Washington DC: World Bank Institute. This i s being piloted, e.g. in Burkina Faso. 21 Bangladesh I-Iealth and Population Sector Program: Combined Mid-Term Review and Annual Program Review (2000), paras. 4.27/9,4.36,4.40 and 6.25.

b

Role of the Press
In a democracy, a free press i s a channel o f i n f o r m a t i o n on the use o f funds a n d a forum for mobilising public opinion a n d bringingi t to focus on abuses o f funds. L i k e audit, i t can have a preventive deterrent effect as w e l l as a transparency-promoting detection effect. Bangladesh have a n energetic and outspoken press. There are 300 daily newspapers a n d 800 weekly publications published in English and Bangla, a f e w o f w h i c h have national coverage. T h e i r r o l e as overseers o f accountability, public or private, however, has not yet developed far. Levels o f professionalism a n d integrity are low, while dependence on advertising from the government a n d business sectors i s hgh. Competition for circulation encourages sensationalism at the expense o f objectivity. Journalists need professional training in investigative journalism a n d journalistic ethics and. This would raise their credibhty in reporting business a n d government affairs. This issue i s comprehensively dscussed in the national institutional review prepared by the World B a n k (2000h, page xii a n d page 25).

Recommendation:

0

Journalists be provided training in investigative journalism and journalistic ethics.

Accountants and Auditors

7. Public Sector

Backwardness of Public Accounting and Auditing
G i v e n the size, complexity and public importance o f m a j o r spending ministries and autonomous bodies, compared with even the largest private sector firms, one might expect C h i e f A c c o u n t i n g Officers to play a s d a r role to Finance Directors in the private sector. This i s far from the case. Only 2% o f the country’s qualified accountants work in the G o v e r n m e n t o f Bangladesh (2 ICAB members, 18 ICMAB). T h i s reflects not j u s t the low pay in the public sector,’ but also the very h t e d role and low status of government accountants a n d auditors. Public accounting in Bangladesh, as in other countries, i s s t d l in a primitive cash accounting stage o f development (IUlan 1990). There i s little demand for management i n f o r m a t i o n a n d accountants are stuck in t h e i r roles as cashiers and bookkeepers. There are only 20 CAOs (for 35 ministries) a n d their management role lies mainly in keeping their colleagues i n f o r m e d on how m u c h o f their budget i s stdl available for spending. CAOs are graded three levels b e l o w Mnistry Secretaries, a hierarchical status gap that makes communication difficult. I n m o r e advanced countries such as Singapore, government accountants are highly trained professionals providing a full range o f financial management a n d advisory services and drawing salaries comparable with the private sector. T h e issue i s one o f training and, in time, the p r o f e s s i o n a h a t i o n of the accounting/auditing cadre, not j u s t pay parity with the private sector. T h e initial need i s to provide a CAO f o r each m i n i s t r y (World B a n k 2000b). This recommendation was endorsed by participants at a Workshop on Budgeting, A c c o u n t i n g a n d Internal Control on June 24,2000. There were 12,846 accounting a n d audit staff in the C&AG’s September 2000, categorized as follows: D e p a r t m e n t as at

Cadre officers enter directly or by promotion from the staff ranks. The Public Service Commission through competitive examination and a foundation (probation) course recruits direct entrants. Accounts officers are recruited without appropriate qualifications such as a commerce degree. They may be graduates in any subject. Allocation o f officers to the specialized cadres, such as Audit and Accounts, should

1 Government accountants get typically Tk 15-1 6,00O/month against their private sector counterparts d r a w i n g Tk.6070,00O/month. Ths reflects not only the low pay throughout the civil service after years o f compression a n d erosion, but also inter-cadre rivalries. Accountancy in the public corporation sector has higher status a n d attracts m o r e accountants (ICAB 39, ICMAB 70, at June 1999).

be based o n relevant education, such as degrees in commerce or accounts.
Secondary Certificate appoint auditors and Junior Audtors. AAOs and SAS Superintendents are p r o m o t e d from Auditors a n d Junior Audtors who pass the SAS examination.

Audit Directorates from among graduates (any discipline) a n d holders o f the figher

Training
T h e Financial Management Academy i s responsible for all training to the officers and staff o f the C&AG’s department. I t i s providng fmancial management training to other cadres and other departments also. T h e D F I D - s u p p o r t e d FIMA project (a sub-project o f RIBEC) has proposed a n e w strategic plan a n d governance structure.

T h e project has designed and run various short full-time courses intended to build particular skills such as IT a n d use o f PCs. Trainees who have the potential are sent to UI< for further training in government financial management a n d change management. Links are being established with the Chartered Institute for Public Finance a n d Accountancy There are no active links with local training institutions, such as PATC, BIM, ICAB a n d ICMAB.

PI<).

T h e liaison with C&AG i s hampered by the lack o f a T r a i n i n g O f f i c e r with a training p l a n for that department. I t i s recommended that a full survey i s made o f the training needs o f the C&AG Department, including determination o f names, posts, duty stations, duties, reporting responsibilities, academic level, past training a n d service history, a n d that this b e used to analyse required in each job, and the existing gaps. the knowledge and SMS

Trainees have not yet been followed up a n d their performance evaluated. I t i s recommended that an independent survey b e made on past trainees to ascertain the impact o f training on the indicators used by the FIMX project.

There i s no full-time national faculty for these courses. A 3-day course on training has been given to about 180 officers. From these, 40 have been identified a n d are being used as parttime trainers in FIMX and C&AG (RIGA project).

Training i s not l i n k e d with the personnel policies set a n d adrmtllstered by the h h i s t r y o f Establishment. In particular, personnel are transferred out o f posts for w h i c h they have been trained, and into posts for w h c h they have not been trained. T h e ‘system loss’ in training i s said to b e 80 percent. Secondly, training i s not a pre-requisite for promotion, so personnel have no incentive to undergo training a n d to reach higher standards o f performance. On the contrary they have to b e given ‘perks’ o f various ktnds to b e induced to attend courses.2 E v e n the top finance positions in the BCS can b e reached by seniority, so e f f o r t a n d application are not required and not rewarded. There i s a danger that the investment in FIMA i s b e i n g wasted like so m u c h other (less valuable) training. I t i s recommended that greater importance b e attached to the professionalization o f training a n d the rationalization o f training a n d other personnel policies.

2

Tk 500 a day i s paid to trainees, and free lunches are provided. T h i s adds to the demand for the courses.

h18rfih. S c ~ t < t r .It.r)t

I Z U I ~ A ~ P Z, Ca~ d L t d i f t ~ 9

T h e p r e - R I B E C courses of FIMX continue separately with a faculty of about 14 instructors. T h e y are n o t trained trainers. T h e y run: a 14 month induction course for PSC recruits assigned to Accounts and A u l t (after w h i c h they go on a 10 month attachment); SAS Parts I a n d I1 examination preparation courses, four months each, focusing on rules and procedures (the pass rate i s about 10 percent); a 3-month junior auditors training course and a 4month senior auditors training course (on w h i c h everybody passes); a l a w course for mid- a n d senior-level officers; and a course for personnel o f DAO a n d TAO pay offices. These courses are not evaluated. Syllabi and curricula need to b e modernized (RIBEC 1997e).

T h e m a j o r constraints on the expansion of training are: insufficient trained trainers; lack of government counterpart capacity (and resource capacity to take trainers and O&M costs onto the revenue budget w h e n t h e project terminates); lack o f space; a n d readiness of departments to release officers full time (half-day release has not been tried). There i s also a geographical h t a t i o n , as accounts and audit officers in the districts are not so easily reached. T r a i n i n g officers in D h a k a are reluctant to go out-station. Distance learning possibhties are b e i n g examined, but the country’s power and telecom infrastructure appears to b e inadequate for Internet access to central learning resources.

I t would b e advantageous if there could b e m o r e contacts and interchange with the accounting profession, as planned in the Maldives, such as personnel exchanges between professional f m s and the C&AG office (e.g. for special audits and value-for-money investigations), joint seminars, training fellowships for Government officers who have the potential to obtain the CA qualification, adding ICAB a n d ICMAB to the distribution l i s t for G o v e r n m e n t circulars relevant to the profession, etc. In the UK, the N a t i o n a l A u l t O f f i c e keeps in close touch with the profession (see box). U n d e r the B a n k assistance to ICAB, five accountants from the C&AG O f f i c e would b e trained in international audtt standards, and would then train others.

Recommendations are as follows:

0

Provide a Chief Accounting Officer for each ministry. Prepare appropriate financial management procedure manuals and guidelines for use by the Principal Accounting Officers and Chief Accounts Officers. Conduct a survey o f training needs in the C&AG office.

0

0

0

Evaluate the impact o f past training.

0
0

Link training with placement, transfer and promotion policies.
Expand training programs for public accountants and auditors.

8. Private Sector
J

Accountabilitv

Companies

T h e crises in East Asia and elsewhere have pushed corporate governance to the top o f the r e f o r m agenda in m a n y countries. A corporate governance framework includes inter alia the laws a n d institutional arrangements for m a k i n g company directors a n d managers accountable to shareholders w h i l e meeting the company's fmancial a n d legal obligations to other stakeholders. T h e m a i n legislation for t h i s in Bangladesh i s the Companies A c t 1994. Public companies issuing securities are subject also to the Securities and Exchange Ordinance of 1969 a n d amendments, the Securities a n d Exchange A c t o f 1993, and rules issued under these laws.

This framework i s intended to protect shareholders and creditors from misuse o f their funds by company directors and officers. T h e Companies A c t prescribes minimum accountability a n d disclosure requirements similar to those in other Commonwealth countries. All l u n i t e d companies are required to prepare annual accounts, have t h e m audited by chartered accountants, a n d submit t h e m together with the auditors' r e p o r t to the Registrar o f Joint Stock
Companies. Companies listed on the D h a k a or Chittagong Stock Exchanges (presently n u m b e r i n g 221) have to meet the additional requirements o f the respective Exchanges a n d o f the Securities a n d Exchange Commission (SEC). Since 1997, a n amendment to S E C Rules has required listed companies to comply with Bangladesh A c c o u n t i n g Standards (based on International A c c o u n t i n g Standards') and their auditors to meet Bangladesh Standards o f Auditing (based on International Standards of Auditing).

T h e position o f shareholders a n d creditors has i m p r o v e d since the share market scams o f 1996-1997, but they s t i l l lack reliable a n d timely information. M a n y companies fad to submit their annual returns to the Registrar or to hold their annual general meetings, a n d m a n y also fail to pay out dividends despite adequate profits. Minority shareholders get little or no r e t u r n on their investment. Allegations o f insider trading are common. Corporate audit committees, including minority interest representation, do not exist. Priority should b e given to the improvement o f accountablllty o f the listed companies.

Responsibility for enforcement i s shared a m o n g the Registrar o f Joint Stock Companies, the SEC, the Stock Exchanges, the professional accounting bodies a n d the judiciary. T h e involvement o f several bodies in corporate accountability complicates enforcement a n d reduces overall effectiveness. Though there are encouraging signs o f these various bodies worhng together to i m p r o v e standards o f corporate accountability, there are also examples o f unilateral action w h i c h have not been in the overall interest.

1 IASs and ISAs are adapted for local laws, institutions a n d terminology. BASs a n d BSAs m e e t I A S s a n d ISAs in all material respects. Out o f 4 0 IASs, 2 4 have b e e n issued as BASs a n d the remainders are in process of b e i n g adopted. Out of 36 ISAs, 22 have b e e n issued as BSAs (World Bank 2000~). h e main outstanding IASs are those relating to T segment reporting, leases, employee benefits, business combinations, retirement benefits, investments in associates and joint ventures, a n d contingent liabilities.

Registrar of Joint Stock Companies
T h e Registrar i s the official holder o f all statutory reports submitted by companies. Any m e m b e r o f the public may apply to inspect any company’s f i e for a small fee. T h e r e are approximately 42,000 companies. Most o f these are private companies that are exempted from the obligation to file their financial statements. There are about 2,400 public companies, w h i c h are obliged to file their financial statements annually in prescribed formats. T h e Registrar cooperates with the SEC and has referred some defaulters to the High Court, but decisions can b e reversed on appeal to the Government ( M m i s t r y o f Commerce). M o r e importantly, the Registrar has neither the systems nor the personnel to monitor compliance across the board. T h e S E C regulates the 221 listed public companies, but the unlisted public companies are a n uncontrolled sector. T h e Registrar has statutory authority to penalize companies for f d u r e to f i e their annual reports, but penalties are too small (eg. Tk.l p e r day o f default) a n d are p a i d only if a company voluntarily makes a late fLling. E v e n if retums have been made, the files cannot always b e readily located. ‘Speed’ m o n e y has to b e paid. T h e Reglstrar’s office urgently needs computerization and strengthening. Corporate penalties should then b e increased to effective levels.

Securities and Exchange Commission

T h e S E C was established only in 1993 to ensure proper issue o f securities, protect investors’ interests, a n d control a n d develop the capital market. I t has minimum disclosure standards for initial public offerings. A recent amendment to the SEC Rules requires annual accounts o f listed companies to b e audited within 120 days o f the e n d o f each year a n d submitted within a further 14 days. A form of audit r e p o r t has been prescribed by the SEC, but professional accountants object that this does not cover all their legal obligations as auditors a n d does not comply with the international standard.2 Half-yearly reports are required within o n e month o f the e n d of the f s s t h a l f o f each year. T h e SEC can allow delays o f up to three months in holding annual general meetings.

T h e S E C has 3 officers who are professional accountants (including the Chairman) a n d several p a r t qualified or with master’s degrees in commerce, finance or business administration. I t has recently been t a h n g action on alleged frauds a n d against defaulting companies. 12 cases o f f d u r e to comply with auditing standards have been referred to the ICAB. (One member’s license to audit was suspended). Far m o r e c o u l d b e done with m o r e trained personnel. T h e ADB i s supporting S E C a n d stock exchange development.

D h a k a and Chittagong Stock Exchanges

E a c h Exchange has listing regulations that a d d to the requirements o f the Companies Act, mainly with regard to contents of the directors’ r e p o r t a n d chairman’s report. T h e exchanges have powers to delist, suspend trading or fine a company.3 However, they do not have

T h e r e are significant differences between SEC’s Form B a n d I S A 700, A p p e n d i x 2. If, for a continuous p e r i o d of three years, its securities are q u o t e d b e l o w 50 O h of the& face value or it has failed to hold an annual general meeting, or if it has not declared a d i v i d e n d for five years.
2
3

the staff capacity to do m u c h m o r e than monitor submission of financial statements a n d issue reminders a n d warnings. 90% o f listed companies are in fact submitting their half-yearly financial statements on time.4 T h e Stock Exchanges also examine brokers' accounts, but do not have the capacity to examine corporate financial statements for compliance with the Companies A c t a n d accounting standards. Effectively, the SEC takes on t h i s responsibibty (though i t i s also resourceconstrained). N o delistings have occurred since 1997.Under a recent amendment to the SEC Ordinance, the S E C can issue directions to the Exchanges to take action against defaulting companies.

T h e Institute of Chartered Accountants o f Bangladesh
T h e ICAB Technical a n d Research Committee i s the de facto standard setting body in Bangladesh.5 T h e ICAB has a legal monopoly o f audit services to all companies. I t s members are expected to meet a code o f ethics and to apply Bangladesh accounting standards (BAS) a n d auditing standards (BSA) relating to external general-purpose financial statements. These apply to the accounts a n d audit o f all corporate entities registered in Bangladesh.6 T h e Companies A c t 1994 has not yet been amended to make t h e m mandatory, but for the 221 listed companies, as n o t e d above, both BAS a n d BSA have been made mandatory by amendment to the 1987 Rules o f the Securities and Exchange Commission. T h e Companies A c t should b e amended to m a k e

4

5 Members

Estimate by the Secretary, D h a k a Stock Exchange, D e c e m b e r 5,2000. of the Institute of Management Accountants o f Bangladesh also prepare c o m p a n y accounts, a n d t h e ICMAB would l i k e to participate in the standard setting process.

the standards applicable to all public companies,7 a n d the professional institutes need to amend their bylaws to make t h e m mandatory on their members. On professional training a n d discipline, see chapter 9 below.

I t i s becoming recognized that setting a n d monitoring accounting a n d auditing standards i s the concern of users o f financial statements and regulatory agencies, as w e l l as the preparers. I t i s p r o p o s e d to set up a NationalAccounting and Auditing Standurds Board to promulgate, implement a n d monitor accounting and auditing standards in the future. This would represent regulatory

bodies a n d users o f financial statements such as the N a t i o n a l B o a r d of Revenue, Regstrar o f Companies, Securities a n d Exchange Commission, Bangladesh Bank, Stock Exchanges, legal profession, Chambers o f Commerce a n d C&AG, as w e l l as the ICAB, Institute o f Chartered Management Accountants o f Bangladesh (ICMAB), the Universities a n d other stakeholders. I t i s p r o p o s e d that ICAB provide secretarial services to the Board. T h e ICMAB also favors establishment o f a Board with these functions. T h e experience o f Sri L a n k a should b e studied (see box).

Recommendations are as follows:
0

Amend legislation so as to make Bangladesh accounting and auditing standards mandatory on all public companies, and to set up Audit Committees in all listed companies having adequate participation o f minority shareholders. Computerize operations and strengthen Companies. the Office o f the Registrar o f

0

0

Set up a National Accounting and Auditing Standards Board with representation from the users o f accounts and regulators as well as preparers, with legal teeth and capacity to enforce standards.

Commercial Banks and Insurance Companies

Commercial Banks

I t has become increasingly clear in recent years that for corporate governance to b e effective, banks a n d their regulators also need good governance. Commercial banks in Bangladesh comprise four nationahzed commercial banks (NCBs), 29 private domestic banks (PDBs) a n d 13 foreign banks. T h e y are regulated by the B a n k i n g Companies A c t 1991 a n d circulars issued by Bangladesh B a n k from t i m e to time. Section 5.2 above covers the NCBs, a n d the comments a n d recommendations there apply to a lesser degree to the private domestic banks.

I n 1997, non-performing loans were about 45% o f the portfolio o f PDBs, the same as for the NCBs, but have since been reduced. T h e main problems are now with the NCBs a n d the two private banks (Rupali a n d Uttara) w h i c h were formerly NCBs. T h e soundness o f most banks

6

7

There are 221 listed companies, some 2,400 unlisted p u b l i c companies a n d a b o u t 42,000 private companies. And perhaps private companies and NGOs over a certain size also.

Pi n x t c Sctwr '4 ~ ra L'

"

~

has been severely undermined by insider lending, fraud and neghgence. I f full provision were made for their b a d loans, their capital would b e highly negative (World B a n k 1998a). This should b e disclosed in their accounts for FY2000, the f i r s t year o f operation o f the n e w b a n k accounting standard. In July 1999, the Basle Committee on B a n h g Supervision issued Sound Practicesjr Loan Accounting and Disclosure. This provides gudance to banks a n d banking supervisors on r e c o p t i o n a n d measurement of loans, establishment o f loan l o s s allowances, a n d credit risk disclosures. Bangladesh B a n k should endeavor to bring i t s supervision/regulation system into full compliance with the standards of the Basle Committee on B a n h n g Supervision.

T h e B a n h g Companies A c t allows banks to make secured loans to their h e c t o r s a n d their affhates, a n d insider lendmg has plagued the banktng sector. In 1999, the Bangladesh B a n k restricted the aggregate loans a h e c t o r c o u l d take to h a l f the h e c t o r ' s equity investment in the bank. I t also prohibited waivers o f interest. N o n e w loans c o u l d b e given, a n d h e c t o r s were given a year to adjust their outstandmg loans to the n e w h i t , or vacate their posts. 47 have been so vacated.

Insurance Companies

Since t h e liberalization o f h s sector, the number of insurance companies has grown from 3 to 62. These are supervised by the C h i e f Controller o f Insurance (CCI), a n office under the M m i s t r y of Commerce. T h e main legislation for insurance companies i s the Insurance A c t of 1938 and Rules of 1958. A n n u a l audited financial statements have to b e submitted on prescribed forms to the CCI within six months o f the e n d o f the year, with separate disclosure of data on each type o f insurance - life, fire, marine, etc. These audit reports are Box 6 not considered sufficient as the T h e International Association of Insurance insurance company appoints the audit Supervisors firm. U n d e r the Act, the C C I appoints firm o f chartered a different T h e I A I S consists o f i n s u i s charged with developing inter accountants to do an annual 'special principles and standards o n insuranc audit'. T h e insurance company pays mth assisting insurance supervisors for both audits. I f audit reports differ, those principles and standards the CCI m a y report auditors programs and trairung. T h e I A suspected o f fraud or negligence to are advisory, rather than bmdmg, on the membership. the Institute of Chartered In September 1997 the IAIS issued the Insurance Accountants. N o audit flrm has ever Supervisory Principles. T h e I A I S has solicited been blackltsted. Recently, for the f i r s t assistance f r o m the World B a n k time, 11 insurance firms were fined principles, standards and gwdance (for issuing policies on credit, in n supervisors, and i p r o m o t i n g imp ards. Standards are ob breach o f the Act).
.iaisweb.org

T h e CCI also licenses insurance agents a n d m a y suspend licenses for i m p r o p e r conduct.

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T h e A c t a n d Rules are out of date and do not always meet current accounting and insurance standards (see box). For instance, the A c t requires income from interest, dividends and rents to b e shown n e t o f tax deducted at source. This i s contrary to accounting standards, and A results in the understatement o f income and expendtture (World B a n k 2000~). draft bdl has been prepared by the CCI.

Recommendations are as follows:
0

M a k e Bangladesh Bank responsible for the supervision o f the whole of the banking sector, including the nationalized commercial and development banks. Bangladesh Bank to enforce the Basle Committee standards and the international accounting standard (now BAS 30) in the financial statements o f commercial banks. Amend the Insurance Act and Rules in line with international accounting and insurance standards.

0

0

Nongovernmental Organizations

T h e fragde a n d fragmented development o f the f o r m a l political i n s t i t u t i o n s o f Bangladesh, coupled with trends in donor aid, have driven the emergence and growth o f numerous NGOs. T h e y fall into two main categories - microcredit activities, w h i c h are mainly self-financing, and grant-fmanced delivery o f social services a n d advocacy. There are 1,544 NGOs in receipt o f foreign funds registered with the NGO Affairs Bureau ( R i m e Minister's Office), of w h i c h about 1,000 undertake microcredit activities. These NGOs are running 795 projects. In addttion, there are about 22,000 locally funded voluntary organizations regstered with the Social Services Department.* There are several umbrella organizations, o f w h i c h the most important i s the Association o f Development Agencies in Bangladesh (ADAB).

NGOs receiving foreign fundtng are subject to the tight accountabdity requirements o f the respective donors. T h e larger NGOs readily make available their audtted accounts and reports a n d are said to have fairly good accountabhty a n d transparency toward their donors, though there i s scope for improvement.9 ADAB should identify a n d p r o m o t e good governance practices.

NGOs are also subject to g o v e m m e n t c o n t r o l but this i s "cursory a t best".lO Those in receipt o f foreign funds are subject to the Foreign Donations (Voluntary Activities) Regulation Ordnance, 1978, a n d Rules under the Ordtnance, a h s t e r e d by the NGO Affairs Bureau. T h e voluntary organizations are subject to the Societies A c t o f 1961 a n d Rules made under that Act. T h e Government's regulatory framework i s mainly concerned with ensuring that NGO activities are lawful, d o not c o n f i c t with government policies a n d do not duplicate programs in the same villages and functional areas, a n d to do t h i s without delaying implementation. Funds from

8 9

Data from the NGO Affairs Bureau, as at December 11,2000. DfID (2000) Partners in Development:A Review of Big NGOs in Bangladesh, Apnl

10

DfID Report, p.42.

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donors are sent directly to NGOs’ bank accounts, but they cannot lawfully b e d r a w n on until the Bureau has approved the relevant project. NGOs are required to submit their project proposals to the Bureau, w h i c h consults with the relevant government ministries a n d gives clearance to NGOs’ banks holding donor funds to allow withdrawals. T h e Bureau i s subject to time h u t s applications for project approval have to b e answered within 21 days (relief projects within 24 hours).11 I f a b a n k pays out without Bureau approval, i t i s d i s c i p h e d through the Bangladesh Bank. Recently, ADB has made a study on modalities of donor funding a n d t h i s i s u n d e r &scussion by t h e Government.
T h e Rules lay down the books to b e kept. A n n u a l accounts are required a n d audit i s by chartered accountants selected by the NGO from a n approved l i s t of 150. Audit reports are due within two months of the end o f each financial year. T h e Ordinance empowers the G o v e r n m e n t to inspect NGO books a n d to carry out i t s own audits if necessary. Annual reports must also b e submitted to the Bureau, showing inter alia project outputs and expendture thana- a n d &strictwise, foreign travel, and emoluments o f all employees receiving m o r e than Tk 5,00O/month.

Most financial statements, au&t reports a n d annual reports are said to b e rendered on time, though the larger a n d m o r e p o w e r f u l NGOs tend to act independently. 89% o f donor funding goes to j u s t four very large NGOs.

There i s a p r o b l e m o f i n t e r - N G O coor&nation: the proliferation of microcredit NGOs m a y result in eight or ten working in the same vdlage. Competition i s not necessarily beneficial. Borrowers can repay one NGO by borrowing from another. A recent Committee recommended that the Bangladesh B a n k and a national NGO monitoring authority supervise NGOs dealing with microcredit. As with government service delivery, the public right to i n f o r m a t i o n i s the key.12

T h e rules require only double entry accounting a n d NGO practices are very varied. Some use cash accounting, some accrual accounting. Donors usually demand project-based accounting that shows separately the use o f their funds. Donations in kmd such as equipment m a y b e treated as i n c o m e in the year of receipt or prorated over the years of benefit. Some NGOs observe the international standard on accounting for government grants, but most do not, Microcre&t institutions should m o v e toward b a n k accounting practice.13 I t would b e better for all NGOs to observe international accounting standards. I t i s therefore r e c o m m e n d e d
0

Association o f Development Agencies in Bangladesh, NGO Affairs Bureau and the professional accounting institutes to work together to promote international standards o f accounting, reporting and auditing in NGOs.

11

P r i m e Minister’s O f f i c e (1993) Working Pmcedure far Foreign ana’ Foreign Assisted Bangfadsbi Non-Govemment Vofuntary Organisations,a n d interview with the D i r e c t o r General o f the Bureau. 12 World B a n k (ZOOOh), pp. 27-30. 13 CGAP (1998) ExtemafAudits OfMimjnance Institutions: A Handbook. Technical Tool Series 3, p.7.

Accountants and Auditors

9. Private Sector

T h e Structure o f the Profession

T w o leading professional associations dominate the accounting/auditing profession.
T h e Institute o f Chartered Accountants o f Bangladesh (ICAB) was established in 1973 by a Presidential O r d e r . T h e Institute of Cost and Management Accountants o f Bangladesh (ICMAB) was constituted by a n Ordinance of 1977. Both bodies fall under the p u r v i e w o f the M i n i s t r y o f Commerce, a n d are in receipt of annual government grants a n d occasional ADP project funding.

For a country having a population o f 130 d o n , and 42,000 companies, the n u m b e r o f professional accountants i s extremely low. At June 1999 there were less t h a n a thousand working in Bangladesh, or about 8 p e r d o n o f population, compared with India's 98 p e r million a n d the UISs 4,611 p e r d o n . '
T h e supply of accountants i s low, partly for lack of adequate training facihties a n d lack o f support for trainees from poor f a d e s : but also because o f low demand for accountancy services. T h e industrial a n d finance sectors, w h i c h are accountant-intensive, are s t d l relatively small. Banks t e n d to use MBAs rather than professional accountants for financial analysis o f projects (where t h i s i s done at all). M o r e significantly, there i s little appreciation o f the value added by competent audit, a n d audit fees are correspondingly low. In the w h o l e history o f Bangladesh there has never been legal action against a n auditor for professional negligence. This reflects low expectations a n d a lack o f understanding o f the significance o f audit rather than high technical a n d ethical standards o f auditors. T h e company l a w i s considerably in advance o f p u b l i c unders tanding.

There i s no accounting manpower study for the country, projecting the future demand a n d supply o f accountants for accounting, auditing (public practice), teaching a n d consultancy functions. N e i t h e r the ICAB nor the ICMAB has a written strategic plan, but a f e w members o f the respective Councils are seriously considering future needs in a globalized a n d Internet world, such as r e g o n a l harmonization o f standards a n d mutual recognition, a n d how their i n s t i t u t i o n s should b e preparing themselves. T h e ICAB i s working on a strategic p l a n for raising accounting a n d auditing standards.

Training and Professional Development

Both the ICAB a n d ICMAB emphasize the maintenance o f quality. E a c h institute has graduate entry a n d has recently revised i t s examination syllabus to equip trainees with managerial s k i u s as w e l l as technical competence. Post-qualification continuing education has become mandatory. There i s a strong emphasis on i n f o r m a t i o n technology a n d English language training. T h e institutes are proud o f the integrity of their examination a n d accreditation processes. Admission to membership requires also minimum periods (3-4 years) o f practical training in a n acceptable office.3.4 T h e n u m b e r o f registered trainees i s very high (ICAB 7,000; ICMAB 13,000

WAC database on accredited member-bodies, summarized in B e n n e t t (2000). Trainees get insufficient salaries to live on w h i l e u n d e r training. T h i s effectively l i m i t s entry to students from m i d d l e class families. 3 T h e ICAB does not a t present allow articled clerks to get their practical training in the C&AG O f f i c e .
1 2

i n c l u d i n g a n addttional 2,051 in 1999) but the drop out rate i s also high: only about 30-35 successfully complete the examinations each year.5 O n e reason i s that trainees come usually from a university education in Bengali whereas the m e d i u m of accountancy training a n d examination i s English, w h i c h dominates the commercial sector. T h e recruitment a n d training arrangements do not appear to b e attracting and holding sufficient numbers o f young people with the potential to qualify. T h e entry points and training structure need to b e re-examined.

Only 7% of trainees are w o m e n (ICAB 3%, ICMAB 10°/o), a n d the n u m b e r who succeed a n d continue in the profession i s miniscule. T h e ICAB has made small steps towards expandtng opportunities for women, such as allowing practicing accountants who have reached the h i t o f 12 trainees to take one m o r e if she i s a woman.
There i s little or no private sector provision o f training. T r a i n i n g i s done entirely by the two institutes. T h e I C M A B and ICAB are each planning an Academic Complex. T h e ICAB i s getting World B a n k assistance with the modernization of i t s Computer T r a i n i n g Center a n d the establishment of an English Learning Center. ICAB training materials date from UNDP project assistance in 1982/83 a n d should b e revised a n d updated.

All education a n d training has so far been oriented to the full professional qualification. T h e r e i s not yet any sub-professional qualification, such as Accounting Technician. Professional accountants are very f e w and their productivity would b e h g h e r if they h a d lower-level technicians to whom routine work c o u l d b e delegated. T h e introduction of a n A c c o u n t i n g Sri Lanka, etc. would provide a recognized accreditation, Technician qualification, as in UK, clearly dtstinct from the CA and CMA, w h i c h would appeal to those who have a n aptitude for accounting a n d auditing work, but not necessarily the educational background or the perseverance to go all the way. Also i t would reduce the dropout rate in the professional examinations by streaming entrants to the profession. T h e experience o f Sri L a n k a m a y b e a useful guide (see box).

~

4

For a CA to o f f e r services as an auditor, a n additional two years o f experience are required a n d a practising licence from the ICAB. 5 T h e average o f the last three years has been 13 chartered accountants a n d 18 management accountants p e r annum.

Recent surveys of compliance o f listed companies with the requirements o f the Companies Act, SEC Rules and BAS show general compliance with the minimum letter o f the l a w (with some major exceptions in group accounts, foreign exchange effects, leasing a n d earnings p e r share), but poor understanding o f the spirit o f disclosure. Two particular omissions in directors’ reports are post-balance sheet events and future prospects (Imam 1999, World B a n k 2000~).On the a u l t side, there have been allegations o f corporate misreporting a n d f r a u d that should have been l s c o v e r e d and reported by the auditors. A clean audit certificate does not assure the N a t i o n a l B o a r d of Revenue that statements are a reliable basis for tax assessments. T h e ICAB has a Code o f Ethics for i t s members a n d an Investigation a n d Disciplinary Committee that can investigate allegations against them, but this self-regulation so far has been inadequate a n d ineffective. T h e ICMAB i s planning to introduce a Code o f Ethics a n d i t s own l s c i p l i n a r y machinery, a n d will need to change i t s bylaws. At present, however, there i s virtually no monitoring of technical and ethical standards of members. T h e World B a n k - I D F grant to ICAB covers a survey o f published accounts, preparation o f case studies a n d training in the application o f IAS and ISA.

Professional accountants, i their various roles as accountants, internal auditors a n d n external auditors, are the eyes a n d ears o f accountability. T h e y are in the best position to know w h e n managers try to defraud the organization or others outside the organization, since they guard the gateway to all m o n e y transactions by the organization. W h e n accountants are members o f a professional body with a n ethical code, accounting becomes a tool o f good economic governance a n d provides m u c h o f the ethical guidance by w h i c h laws a n d regulations are followed. T h e chartered accountants have a code o f ethics a n d the management accountants are in the process of preparing theirs. T h e tough part i s ensuring that members understand their importance a n d comply.

Recommendations are as follows:
0

Professional institutes to prepare strategic plans to expand the output o f professional accountants and auditors without sacrificing quality. Set up a sub-professional accounting qualification. their codes strictly.

0 0

ICMAB to introduce a code o f ethics, and both professional institutes to enforce

10. N e x t Steps

This assessment i s o f a country that i s struggling to build open, democratic a n d
transparent institutions on a legacy o f colonial rule a n d d t a r y dictatorships. Enormous gains have been m a d e in the institutionalization o f democracy, particularly since 1991. But this i s only ten years. I t i s not surprising that fmancial management i s SUU extremely weak a n d that there are tremendous 'gaps' w h e n accountability i s compared against international standards. Nevertheless, r e f o r m starts with a n acknowledgement o f these weaknesses a n d a willingness to look ahead a n d review options a n d strategies for the continued development o f standards. At present, p u b l i c resources, whether p r o v i d e d from domestic or external sources, are at very considerable risk o f b e i n g used for purposes other than those for w h i c h they were intended. Without significant i m p r o v e m e n t in fiscal probity, the assessment will remain unfavorable. From a donor perspective, the m o v e from individual project support to programmatic support requires sound a n d transparent fmancial management and procurement systems. These preconditions cannot b e said to exist in Bangladesh at present.

T h e assessment has found that the gap between international standards a n d national standards i s not as serious as the gap between national standards a n d national practices. L a w s a n d regulations exist, but are not enforced. At present there are f e w visible sanctions for wrongdoing. As laws a n d regulations have not been enforced they have fallen into disuse and o f t e n been forgotten. T h i s suggests that a program to raise accountability standards will need to b e accompanied by widespread refresher training of public officers on the regulatory framework. I t also suggests that the program will have to give priority to senior levels of public officer, since their behavior sets unofficial standards for lower-level officers. T h e changes wdl involve a phased, m e d i u m - t e r m program o f 5-10 years.

T h e prospects for such a program, as for any governance r e f o r m program, depend on the decisions a n d actions o f the political-administrative directorate. Past experience shows that r e f o r m proposals o f t e n die at the top. Bangladesh has a relatively open society: public sector reforms are widely a n d frankly debated. Issues are put on the table a n d consensus i s o f t e n reached at workshops a n d conferences of stakeholders. However, the debate i s sterile: little or no action follows. There i s a 'disconnect' between thought a n d action. T h e same recommendations are made repeatedly each year. M a n y o f the recommendations in this r e p o r t parallel the recommendations o f the Public Adrmnistration Reforms Commission. T h e damning reports of the Public Accounts Committee a n d Committee on Public Undertakings are not acted on. I t appears that there are insufficient incentives within the G o v e r n m e n t to change the status quo.

Some reforms have succeeded through consensus building a n d participation, such as the RIBEC family o f projects. These reforms h a d to benefit all the stakeholders whose cooperation was needed, s o their scope and impact have been l i m i t e d a n d constrained by the unwillingness to change organizational structures w h i c h protect the interests o f p u b l i c sector officials (World B a n k 2000h, p.85). There i s a h u t to how far purely 'technical' reforms can go without changing

who controls w h a t a n d stepping on toes and prejudicing perceived interests. T h e interests o f the public are being sacrificed to the interests o f a relatively small n u m b e r o f public officials.

A key recommendation, therefore, i s to mobihze support for r e f o r m from all who would benefit from it, both within the Government a n d without. T h e outside stakeholders include citizen groups a n d advocacy organizations that represent t h e m (includtng the media, the local
chapter of Transparency Intemational, academia a n d the Public Administration R e f o r m

Commission), the business community and their associations, a n d the donor community. At present there i s little or no continuing collaboration among these groups for the promotion of accountabdtty and transparency. T h e demand for change i s fragmented a n d ineffective. N o r i s there any n e t w o r k of public officers who have an interest in restoring the reputation o f their government, but who are i n l v i d u a l l y powerless and unwdling to speak out against the current ethos. Though there are some officials who have made progress in a n adverse environment, they are f e w a n d scattered. T h e proposal i s to establish a continuing public forum o f oversight agencies, c i v i l society organizations and individuals for the enhancement o f accountability, transparency and the rule o f law. T h e initiative for t h i s should b e taken by the C&AG, whose audtt dlrectorates provide the m a i n center of oversight o f public funds management. Donor agencies should agree on joint support to the establishment and operations o f the forum.

A second key recommendation for implementation i s for greater transparency o f public sector activities. T h e media, for instance, cannot function effectively as p a r t o f the accountability system unless public agencies issue regular performance a n d financial reports on their activities. These should b e submitted regularly to Parliament and made available at the same t i m e to the public both in print and on a w e b site.
A c c o u n t a b h t y a n d transparency are the handmaidens o f democracy. T h e progress made over the past decade has neglected these dunensions. Concerted action i s now urgently needed to i m p r o v e the status of accountability and transparency in Bangladesh.

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