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Appointing AG as external auditor for Natural Resource Fund a wrong move

Nov 09, 2018 News

By Kiana Wilburg
At present, the Audit Office has been earmarked as the External Auditor for the Natural Resource Fund (NRF). But international agencies such as the Natural Resource Governance Institute (NRGI) are of the firm view that this is a wrong move. The Institute made it clear that the Audit Office is subjected to applying for annual funding which is often subjected to cuts, thereby limiting its independence. Considering this and other factors, the NRGI called on the coalition administration to hire an internationally recognized and experienced auditing firm to be the external auditor of the Natural Resource Fund. It was stressed that this move would not be an abnormal one, since nations such as Chile, Norway and Timor-Leste, and U.S States such as Texas, Alaska, North Dakota and Wyoming, each require that an independent external auditor that meets international standards audit their funds.
It was suggested too that financing for external audits could be part of the Fund’s annual operating budget. The NRGI said that at this point, Guyana cannot afford to make mistakes or leave anything to chance. It said that given the circumstances, Guyana would be placing itself in the best position by appointing an international firm as the external auditor for the fund and not the nation’s Audit Office.
SCRUTINY OF
RESOURCE FUND
In addition to the advice from the NRGI, one of the leading financial institutions and development partners for Guyana, the World Bank, has noted that the scrutiny of a nation’s Natural Resource Fund cannot rest with the government alone. It stressed that oversight bodies which are independent of political influence must also have a role in ensuring transparency of the Fund.
The institution’s advice is predicated on the well documented cases of resource funds which are not properly managed due to lack of oversight by independent actors. The Bank said that too often, Natural Resource Funds are only accountable to only a few persons, who are political appointments.
It said that in most countries, constraint and accountability are ideally spelled out in legislation. And most governments know that independent and regular audits are also essential. It stressed however that these are oftentimes not practiced.
For nations interested in ensuring accountability of their NRFs, the World Bank advised that good governance practices must several layers of transparency mechanisms. It said that these would include both vertical and horizontal accountability.
The World Bank explained that vertical accountability comes with management reporting that leads, ultimately, to a minister. Horizontal accountability, however, is provided by regular reporting on the Fund’s performance to elected officials who are independent of government. The Bank said that this type of accountability also includes widely available and readily accessible public information on the Fund.
“Transparency with respect to all aspects of fund operation and performance is generally regarded as indispensable to achieving good governance. This can be achieved through press releases, publications and audits which are available on the internet.”
Further to this, the Bank said that the presence of watchdog non-governmental organizations (NGOs) strengthens horizontal accountability.
As with most Funds, the World Bank said that the management process will often involve the use of asset managers as well as internal and external managers. It stressed, however, that the recruitment of any asset manager should be made as independent as possible. It stressed too that regular, independent audits are essential if confidence in the Fund is to be established and maintained.
The World Bank said that Norway is a prime example of the independent process that is needed to manage a Fund. In the case of Norway, an external performance audit is carried out and published. This is in addition to the internal audit on the country’s NRF. The Bank said that these systems of control are essential to making any NRF a success.
(See link for more details http://www.eisourcebook.org/uploads/files/146340875221568.3ResourceFundsandtheirPopularityEISB.pdf)

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