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Almost 60 institutions have recorded deficits running up to millions of rupees for the year 2011, The Sunday Leader learns.
A draft report from the Committee on Public Enterprises (COPE), a copy of which is in The Sunday Leaders possession, also acknowledged that what they termed improper financial planning, had led to the State sustaining severe losses through institutions like the Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), SriLankan Airlines and Mihin Lanka.
Small wonder then, that the report, which focuses on the financial records of institutions for the 2010-2011 period, went so far as to say that if the situation was not addressed promptly, institutions like the CEB, CPC and Mihin Lanka would be on the verge of a collapse.
The worst offenders
COPE has noted that the worst loss-maker was the CPC, which had recorded a massive Rs 94.5 billion loss in 2011. This is compared to a Rs 26.9 billion loss in 2010; the CPC had worsened its situation to the tune of almost Rs 70 billion over the space of a single year, the report shows.
The runner up was the CEB, which sustained a Rs 19.2 billion loss in 2011, as compared to a Rs 4 billion profit in 2010.
National carrier SriLankan Airlines had also sustained a Rs 19.7 billion loss in the year 2011, compared to a loss of Rs 3.82 million the previous year. Mihin Lanka fared no better, making losses amounting almost to Rs. 2 billion.
Other loss makers included the Ceylon Fisheries Corporation, the Elkaduwawa Plantation, Kantale Sugar Industries and MILCO Ltd
Many of these institutions, it was found, had sustained continued losses over a period of three years (See Box 2).
Ceylon Fisheries Corporation, CPC and the two national carriers were among this group. SriLankan Airlines in particular had progressed from a Rs 2 billion loss to a Rs 19.6 billion loss from 2009 to 2011.
Kantale Sugar too had gone from recording a Rs 13 million loss to a loss of a little over Rs 1 billion. Overall, 15 institutions had recorded continuous losses for three years the CEB was not among them, though it sustained the heaviest losses for the financial year 2010 to 2011.
Other institutions that incurred heavy losses in 2011 include the Sri Lanka Export Development Board, with a deficit of Rs 19 million, the Local Loan Development Fund (Rs 47 million) the Road Development Authority (Rs 4 billion).
The Samurdhi Authority managed to reduce its deficit but still ran up a deficit of Rs 9.5 million for 2011, compared to an even more dismal Rs. 2.6 billion for the year ended 2010.
Eighteen institutions presented their financial statements with a disclaimer audit opinion which is issued when the audit firm refuses to present an opinion on the financial statements provided. This could be due to several reasons, from a lack of independence, or conflict of interest, to limitations in scope in the audited institution offering documents, when there is substantial doubt as to whether the audited instituion can continue as a going concern, according to the Statement on Auditing Standards.
Among these institutions were the Colombo Commercial Fertiliser Ltd., the National Youth Services Council, the Saumyamoorthi Thondaman Memorial Foundation and the Land Reform Commission. The CPC and the Paddy Marketing Board financial statements were both offered with a disclaimer audit opinion in 2010.
A few also had adverse audit opinions raised against them for the year 2011- among them the Open University of Sri Lanka and the Institute of Indigenous Medicine.
The Silver Lining
In the meantime, eight institutions did show a marked improvement over the same period (See Box 3). The Associated Newspapers of Ceylon made a Rs 14 million profit by the end of 2011, compared to a Rs 35 million loss in 2010. The National Water Supply and Drainage Board also made a profit of Rs 4.7 billion for the year ending 2011, and the Sri Lanka Ports Authority made a profit of Rs 7.8 billion over the same period. The Urban Development Authority too recorded a profit of Rs 2.4 billion. Overall, 54 state institutions improved their financial position over the period of a year, whether through losses that were turned into profits, or simply continuing to build upon their surpluses, while 25 institutions substantially decreased their deficit in 2011 compared to 2010.
These figures are misleading, however, given that several of these 25 continued to record deficits. For instance, the Farmers Pension Social Security Benefit Scheme recorded a massive Rs 3.6 billion loss in 2011, compared with a Rs 3.9 billion loss in 2010.
COPE which is chaired by Senior Minister, D. E. W Gunasekara has made several observations on the poor performance of some of the institutions.
Poor Debt Management, Overstaffing and lack of Professional Staff
For instance, it was noted that the debt management of most of the public institutions was extremely unsatisfactory, with some debts being irrecoverable due to lapses in agreement and simple inactivity during the required time period.
Many of the institutions were also heavily overstaffed one such instance being the Sri Lanka Transport Board.
The COPE report also observed that there had been several instances where employees had been released to the line Ministry, in direct contravention of Treasury Circulars, but their salaries and allowances were being borne by the institutions they belonged to. In short, what this amounts to is that employees were drawing salaries despite not working at the institution concerned. A case in point was the National Housing Development Authority, which had paid a shocking Rs 9.77 million for salaries and allowances of 37 employees, who had already been released to the line Ministry.
This practise even extended to motor vehicles being released for the use of the line Ministry. The Committee strongly recommended that this practise be discontinued.
Further issues included redundant institutions which were not operational in any sense, yet had not been wound up, causing further strain on state resources. The Vegetable Development Board, Fruit Development Board, Pulses and Grain Research and Production Authority, State Trading (COOP) Wholesale Com Ltd. and Janatha Fertiliser Com Ltd. had been non-operational for a significant period of time without being liquidated this despite Cabinet approval being granted to do so.
Even more outrageously, there were some institutions which were unviable for instance the Lakdiva Engineering Company, which engaged in repairing and manufacturing the bodies of buses for the Sri Lanka Transport Board this body had a laughable annual output of only four and COPE recommended the winding up of this particular institution. Incidentally, Lakdiva Engineering managed to run up a loss of Rs. 5.3 million despite having such a low output certainly a factor in COPEs recommendation that Lakdiva be shut down and the employees merged with the Sri Lanka Transport Board workforce.
A dearth of qualified actuaries was considered a key reason behind the collapse of the now defunct Agrarian and Agricultural Insurance Board, since no one had foreseen the non-viability of its pension scheme.
It was found that the internal audit function of some public enterprises was inadequate, with a shortage of staff in this area, while some institutions had no internal audit division at all.
The Committee also recommended that heads of institutions and board members be appointed only by considering qualification and experience, given that their decision making depended on both their knowledge and experience on a particular topic.
COPE also said that in some instances trade unions made an adverse impact on decision making due to their demands.
Another key issue raised was that several institutions did not present their annual reports in Parliament. In fact, as of the year ended 2011 there had been some institutions which had not yet handed in their annual reports for the year 2009, on the grounds that there is no provision for them to do so in the Companies Act. Thirty six institutions had not tabled their Annual Reports for the year 2009, including the Defence Service Command and Staff College, the Social Security Board, Sri Lanka Transport Board, and the Universities Pension Fund and Provident Fund. A total of 50 institutions which had not tabled their reports as at the end of June this year was recorded and among them are Ceylon Petroleum Corporation, the National Housing Development Authority, the National Livestock Development Board and the Central Environmental Authority.
Advice from COPE Chairman
Chairman Gunasekara in his opening statement said that attention should be drawn to the need to appoint more professional, experienced and skilled personnel, who should be made fully answerable and accountable for their work. This could be best achieved with minimal interference from above Gunasekara noted, adding that professional accountants were hard to come by as they often did not receive sufficient remuneration.
In an ironic twist, the COPE report also said that recruiting more professional staff could only be done by increasing their salary scale, particularly for high ranking posts. It therefore called upon the Treasury to take immediate action to raise salaries for these posts, as otherwise it could lead to a collapse of the public sector.
The draft COPE report has highlighted numerous failings and simply poor decision making which led to massive losses in the state sector in the year 2011. While a few institutions did flourish and show positive improvement, many more floundered in a deficit position so desperate that even the Committee called for urgent action to be taken to prevent an imminent collapse. While it was noted that professional staff was sorely needed to improve performance, there was in the same breath a call for higher remuneration for public sector staff, in a bid to attract more qualified professionals to these posts. It was also noted that COPE would take all possible steps to present quarterly reports, to enable the authorities to take prompt remedial measures, giving Members of Parliament the right to raise any issue on the floor of the House as otherwise, they would have to wait for one long year until the final report is presented.
A total of 247 institutions have already been examined for the financial year of 2012-2013, from January 1, 2012 to March 31, 2013, the report says.
With losses in institutions like the Ceylon Petroleum Corporation running into billions of rupees, the question is whether the recommendations put forward by COPE are simply too little, too late. Given the massive scale of losses suffered, it seems the recommendations made would only marginally alleviate these pressing issues. In the future, if these are not addressed, it could indeed spell disaster for several institutions and even the local economy at large.
For the sake of clarity, The Sunday Leader provides the tables on loss and profit making institutions.
www.thesundayleader.lk/wp-content/uploads/2013/07/4-02-495x270.jpg
A draft report from the Committee on Public Enterprises (COPE), a copy of which is in The Sunday Leaders possession, also acknowledged that what they termed improper financial planning, had led to the State sustaining severe losses through institutions like the Ceylon Electricity Board (CEB), Ceylon Petroleum Corporation (CPC), SriLankan Airlines and Mihin Lanka.
Small wonder then, that the report, which focuses on the financial records of institutions for the 2010-2011 period, went so far as to say that if the situation was not addressed promptly, institutions like the CEB, CPC and Mihin Lanka would be on the verge of a collapse.
The worst offenders
COPE has noted that the worst loss-maker was the CPC, which had recorded a massive Rs 94.5 billion loss in 2011. This is compared to a Rs 26.9 billion loss in 2010; the CPC had worsened its situation to the tune of almost Rs 70 billion over the space of a single year, the report shows.
The runner up was the CEB, which sustained a Rs 19.2 billion loss in 2011, as compared to a Rs 4 billion profit in 2010.
National carrier SriLankan Airlines had also sustained a Rs 19.7 billion loss in the year 2011, compared to a loss of Rs 3.82 million the previous year. Mihin Lanka fared no better, making losses amounting almost to Rs. 2 billion.
Other loss makers included the Ceylon Fisheries Corporation, the Elkaduwawa Plantation, Kantale Sugar Industries and MILCO Ltd
Many of these institutions, it was found, had sustained continued losses over a period of three years (See Box 2).
Ceylon Fisheries Corporation, CPC and the two national carriers were among this group. SriLankan Airlines in particular had progressed from a Rs 2 billion loss to a Rs 19.6 billion loss from 2009 to 2011.
Kantale Sugar too had gone from recording a Rs 13 million loss to a loss of a little over Rs 1 billion. Overall, 15 institutions had recorded continuous losses for three years the CEB was not among them, though it sustained the heaviest losses for the financial year 2010 to 2011.
Other institutions that incurred heavy losses in 2011 include the Sri Lanka Export Development Board, with a deficit of Rs 19 million, the Local Loan Development Fund (Rs 47 million) the Road Development Authority (Rs 4 billion).
The Samurdhi Authority managed to reduce its deficit but still ran up a deficit of Rs 9.5 million for 2011, compared to an even more dismal Rs. 2.6 billion for the year ended 2010.
Eighteen institutions presented their financial statements with a disclaimer audit opinion which is issued when the audit firm refuses to present an opinion on the financial statements provided. This could be due to several reasons, from a lack of independence, or conflict of interest, to limitations in scope in the audited institution offering documents, when there is substantial doubt as to whether the audited instituion can continue as a going concern, according to the Statement on Auditing Standards.
Among these institutions were the Colombo Commercial Fertiliser Ltd., the National Youth Services Council, the Saumyamoorthi Thondaman Memorial Foundation and the Land Reform Commission. The CPC and the Paddy Marketing Board financial statements were both offered with a disclaimer audit opinion in 2010.
A few also had adverse audit opinions raised against them for the year 2011- among them the Open University of Sri Lanka and the Institute of Indigenous Medicine.
The Silver Lining
In the meantime, eight institutions did show a marked improvement over the same period (See Box 3). The Associated Newspapers of Ceylon made a Rs 14 million profit by the end of 2011, compared to a Rs 35 million loss in 2010. The National Water Supply and Drainage Board also made a profit of Rs 4.7 billion for the year ending 2011, and the Sri Lanka Ports Authority made a profit of Rs 7.8 billion over the same period. The Urban Development Authority too recorded a profit of Rs 2.4 billion. Overall, 54 state institutions improved their financial position over the period of a year, whether through losses that were turned into profits, or simply continuing to build upon their surpluses, while 25 institutions substantially decreased their deficit in 2011 compared to 2010.
These figures are misleading, however, given that several of these 25 continued to record deficits. For instance, the Farmers Pension Social Security Benefit Scheme recorded a massive Rs 3.6 billion loss in 2011, compared with a Rs 3.9 billion loss in 2010.
COPE which is chaired by Senior Minister, D. E. W Gunasekara has made several observations on the poor performance of some of the institutions.
Poor Debt Management, Overstaffing and lack of Professional Staff
For instance, it was noted that the debt management of most of the public institutions was extremely unsatisfactory, with some debts being irrecoverable due to lapses in agreement and simple inactivity during the required time period.
Many of the institutions were also heavily overstaffed one such instance being the Sri Lanka Transport Board.
The COPE report also observed that there had been several instances where employees had been released to the line Ministry, in direct contravention of Treasury Circulars, but their salaries and allowances were being borne by the institutions they belonged to. In short, what this amounts to is that employees were drawing salaries despite not working at the institution concerned. A case in point was the National Housing Development Authority, which had paid a shocking Rs 9.77 million for salaries and allowances of 37 employees, who had already been released to the line Ministry.
This practise even extended to motor vehicles being released for the use of the line Ministry. The Committee strongly recommended that this practise be discontinued.
Further issues included redundant institutions which were not operational in any sense, yet had not been wound up, causing further strain on state resources. The Vegetable Development Board, Fruit Development Board, Pulses and Grain Research and Production Authority, State Trading (COOP) Wholesale Com Ltd. and Janatha Fertiliser Com Ltd. had been non-operational for a significant period of time without being liquidated this despite Cabinet approval being granted to do so.
Even more outrageously, there were some institutions which were unviable for instance the Lakdiva Engineering Company, which engaged in repairing and manufacturing the bodies of buses for the Sri Lanka Transport Board this body had a laughable annual output of only four and COPE recommended the winding up of this particular institution. Incidentally, Lakdiva Engineering managed to run up a loss of Rs. 5.3 million despite having such a low output certainly a factor in COPEs recommendation that Lakdiva be shut down and the employees merged with the Sri Lanka Transport Board workforce.
A dearth of qualified actuaries was considered a key reason behind the collapse of the now defunct Agrarian and Agricultural Insurance Board, since no one had foreseen the non-viability of its pension scheme.
It was found that the internal audit function of some public enterprises was inadequate, with a shortage of staff in this area, while some institutions had no internal audit division at all.
The Committee also recommended that heads of institutions and board members be appointed only by considering qualification and experience, given that their decision making depended on both their knowledge and experience on a particular topic.
COPE also said that in some instances trade unions made an adverse impact on decision making due to their demands.
Another key issue raised was that several institutions did not present their annual reports in Parliament. In fact, as of the year ended 2011 there had been some institutions which had not yet handed in their annual reports for the year 2009, on the grounds that there is no provision for them to do so in the Companies Act. Thirty six institutions had not tabled their Annual Reports for the year 2009, including the Defence Service Command and Staff College, the Social Security Board, Sri Lanka Transport Board, and the Universities Pension Fund and Provident Fund. A total of 50 institutions which had not tabled their reports as at the end of June this year was recorded and among them are Ceylon Petroleum Corporation, the National Housing Development Authority, the National Livestock Development Board and the Central Environmental Authority.
Advice from COPE Chairman
Chairman Gunasekara in his opening statement said that attention should be drawn to the need to appoint more professional, experienced and skilled personnel, who should be made fully answerable and accountable for their work. This could be best achieved with minimal interference from above Gunasekara noted, adding that professional accountants were hard to come by as they often did not receive sufficient remuneration.
In an ironic twist, the COPE report also said that recruiting more professional staff could only be done by increasing their salary scale, particularly for high ranking posts. It therefore called upon the Treasury to take immediate action to raise salaries for these posts, as otherwise it could lead to a collapse of the public sector.
The draft COPE report has highlighted numerous failings and simply poor decision making which led to massive losses in the state sector in the year 2011. While a few institutions did flourish and show positive improvement, many more floundered in a deficit position so desperate that even the Committee called for urgent action to be taken to prevent an imminent collapse. While it was noted that professional staff was sorely needed to improve performance, there was in the same breath a call for higher remuneration for public sector staff, in a bid to attract more qualified professionals to these posts. It was also noted that COPE would take all possible steps to present quarterly reports, to enable the authorities to take prompt remedial measures, giving Members of Parliament the right to raise any issue on the floor of the House as otherwise, they would have to wait for one long year until the final report is presented.
A total of 247 institutions have already been examined for the financial year of 2012-2013, from January 1, 2012 to March 31, 2013, the report says.
With losses in institutions like the Ceylon Petroleum Corporation running into billions of rupees, the question is whether the recommendations put forward by COPE are simply too little, too late. Given the massive scale of losses suffered, it seems the recommendations made would only marginally alleviate these pressing issues. In the future, if these are not addressed, it could indeed spell disaster for several institutions and even the local economy at large.
For the sake of clarity, The Sunday Leader provides the tables on loss and profit making institutions.
www.thesundayleader.lk/wp-content/uploads/2013/07/4-02-495x270.jpg
