The Role of Controller and Auditor General (CAG) in Public Financial Management
Among the greatest issue of discussion in Tanzania for the week starting 1 st April 2019 is the decision of the Parliament to not work with the country’s Controller and Auditor General (CAG).
This decision has many and far-reaching implications in many aspects including in the context of Public Financial Management (PFM). This is so because the reports issued by the CAG are among key documents on prudent public financial management.
The CAG normally issues his report for a given fiscal year ending on 30th of June. The reports normally contain extremely important issues patterning to public funds. The standoff between the Parliament and the CAG necessarily calls wider discussions. This piece outlines the standoff in the context of PFM.
Public funds
Public funds are in Tanzania raised from various internal and external sources. Internal sources include tax and non tax revenues. Taxes are of various categories. They include but are not limited to Value Added Tax (VAT), Pay As You Earn (PAYE), Corporate Income Tax (CIT), Skills Development Levy (SDL), property tax and many other taxes.
At Local Government Authorities (LGAs) level public funds include revenues from fees, cess, fines etc. Other sources of public funds include loans and aid. Loans have to be repaid by tax payers money and aid money is donor countries’ tax payers money.
All these are funds raised from the public for funding public goods and services. Public goods and services include economic infrastructure such as roads, ports, airports and railways. These are hard infrastructure. Economic infrastructure include soft infrastructure as well including the Internet. Public goods and services include water, education, health, security etc.
Partly these funds are managed and accounted for through cvarious legal, policy and regulatory frameworks as well as institutions. One such institution is the National Audit Office where the CAG is housed.
On CAG’s reports
The CAG reports are results of wide and at times in-depth audit of public funds, systems, laws, regulations and practices related to public funds.
The audits aim at finding out the extent to which laid down laws, regulations and procedures on public financial management are followed.
The CAG also audits internal systems in public institutions covering Ministries, Departments and Agencies (MDAs). He also audits political parties as they are beneficiaries of public funds collected through taxation.
His annual reports show PFM issues for a given year as well as for issues discovered in past years that were yet to be reported on. It also informs on compliance with earlier recommendations given by CAG and the Public Accounts Committee (PAC) of the Parliament.
Selected examples
The CAG has been issuing several reports of significant importance in the PFM space.
The 2017 report for example, shows that release of budget funds for that year was below what was approved by the Parliament. In the 2015/16 fiscal year, the funds released for the development expenditure post were just 75.8 per cent of approved amount. It implies a 24.2 per cent shortfall. This has many and far-reaching negative implications related to non implementation of promised and planned development projects and is likely to recur in other fiscal years if not properly checked.
The 2017 CAG report on Tanzania Revenue Authority (TRA), shows among other things that there have been tax revenue losses due to tax exemption.
It documents that there has been misuse and abuse of tax exemptions related to vehicles transaction to the tunes of Sh3.46 billion.
The exemption was granted to two beneficiaries in the transport sector who imported a total of 238 vehicles. The CAG found out that these vehicles were not registered in the names of the beneficiaries of the exemption as required by the law.
The report documents issues of concern on fuel tax exemption involving 4,248,802 litres of fuel for use in three gold mines between October 2014 and December 2015. These were tax exempted but the CAG audit could not get documents confirming that the consignment reached the required destinations. Several similar issues of PFM concern for several CAG reports can be cited.
If CAG report is not discussed
If it happens that CAG’s reports are not discussed by Parliament, it will be a very unfortunate thing in the broad prudent PFM space.
The required scrutiny will be missing and it is a negative score for those generating public funds.
Tax payers, donors and lenders of public funds have interest in knowing how their funds are used. If the Parliament does not discuss and act on CAG’s report for 2019 for example, it will be a blow to prudent PFM.
