EL SALVADOR'S COMPTROLLER'S OFFICE, A WEAK

C O N F I D E N T I A L SECTION 01 OF 03 SAN SALVADOR 002930

SIPDIS

E.O. 12958: DECL: 09/28/2015
TAGS: PGOV KCOR ES
SUBJECT: EL SALVADOR'S COMPTROLLER'S OFFICE, A WEAK
INSTITUTIONAL LINK


Classified By: DCM Michael A. Butler for reasons 1.4(b) & (d)


1. (C) Summary: El Salvador's supreme audit institution is
the Comptroller,s Office (Corte de Cuentas). It is a
nominally-independent body charged with reviewing fiscal
spending by the public sector, and has been at the center of
recent political scandals. The National Conciliation Party
(PCN),a minority, right-wing party, has controlled the
Comptroller,s Office for the last 20 years by selecting its
president, who runs the business agenda with an iron fist.
An agreement appears to exist between the ARENA and PCN
parties to leave the Comptroller,s Office in PCN hands, in
exchange for the Comptroller not auditing the Executive or
ARENA. PCN leader and National Assembly President Ciro Cruz
Zepeda has used the Comptroller,s Office to maintain the
political power of his declining party, by using the office
as a potential Sword of Damocles over other parties. Recent
scandals have exposed the weaknesses of the Comptroller,s
Office. In one case, the Office failed to detect over USD
$40 million in kickbacks to a senior government official. In
a separate case involving the former Tourism Minister, the
Comptroller,s Office interpreted the law in such a way that
the Minister was essentially absolved of wrongdoing.

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The Constitutional Role of the Comptroller,s Office
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2. (U) As decreed in the Constitution, the Comptroller,s
Office has responsibility for:

- Vigilance over the collection, custody, authorization, and
payment of public funds, as well as the spending of taxes,
rates, fees, and other contributions, as established by law.
- Approving of the spending of all public funds, in
accordance with the budget, intervention in all matters that
directly or indirectly involve the public treasury, and
authenticating those acts and contracts related to the public
debt.
- Analyzing, inspecting, and auditing the financial accounts
of public officials and employees that administer or manage
public assets, and knowing about the transactions originated
by such accounts.
- Auditing the spending of autonomous institutions and
corporations and other entities which receive funding from
these institutions and corporations.
- Examining the Executive Branch's treasury report to the
Legislative Assembly, and reporting to the Assembly regarding
the results.
- Drafting the regulations needed for the fulfillment of
functions.
- Informing the President and Legislative Assembly of proven
irregularities by any public official or employee in the
management of funds.
- Assuring that the debts of the State and Municipalities are
paid.


3. (SBU) The Comptroller,s Office is divided into Auditing
functions and Administrative Courts. Three elected
magistrates preside over the Comptroller,s Office: Hernan
Contreras as President (PCN),Arnoldo Marin (Christian
Democratic -PDC party) and Abdon Martinez (ARENA). Each
magistrate must receive a simple majority of Legislative
Assembly votes to be elected, and each serves for a three
year term. The three judges were re-elected on June 3 to
another full term. While each magistrate has an equal vote
to decide cases, the chief magistrate and President
(Contreras) controls the agenda, including the persons and
agencies to be audited. Contreras has served six years in
office and effectively controls the operations of the
Comptroller,s Office. In practice, the Comptroller,s
Office has achieved levels of political power unforeseen by
the drafters of the Salvadoran Constitution. Detailed
oversight of expenditures by agencies headed by political
opponents, such as auditing the rate of expenditures of
pencils, is reported to be common, while political allies
regularly escape review. Although the Comptroller,s Office
should have limited political power, it has used its auditing
functions to wield more power than the Attorney General's
office. The Legislative Assembly is authorized by law to
conduct independent audits of the Comptroller,s Office, but
has not done so since 1996. One legislator from the
Democratic Change (CD) party told Poloff that "it's difficult
for one political institution like the Assembly to control
another political institution like the Comptroller,s Office."

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The Comptroller,s Office and the PCN
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4. (C) Founded in 1961 as a front for the military, the PCN
has been rife with corruption for decades. While the PCN
played a key role in Salvadoran society in the 1960's and
1970's and acts as an important legislative ally to ARENA
against the FMLN opposition agenda, many critics believe that
its real level of electoral support is difficult to quantify
because of institutionalized electoral fraud. The party's
popularity began to decline after the 1984 presidential
elections, and during the 2004 presidential elections it did
not obtain the 3% of the vote needed to continue as a
political party. Nevertheless, a Supreme Court decision
based on legal technicalities saved the party and authorized
its continued existence. The PCN has used 20 year control of
the Comptroller's Office as a potential stick against
political enemies and threats on its political space from
other political parties. It appears that there is a
"gentlemen's agreement" between the PCN and ARENA giving
control of the Comptroller,s Office to the PCN, while the
Attorney General's (Fiscal) office remains in the hands of
ARENA. Further evidence that the PCN is using the
Comptroller's Office to maintain political power is the fact
that during their 20 years of control, there has not been a
single prosecution for financial mismanagement.

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Glaring Examples
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5. (C) Carlos Perla, the president of the National Waterworks
and Sewer Administration (ANDA) from 1994-2002 is under
indictment for the embezzlement of approximately USD $40
million. Local Newspapers "La Prensa Grafica" and "El
Diario" reported that the money was received as kickbacks
from construction projects. Perla's illicit enrichment
should have been obvious to anyone who knew his luxurious
lifestyle. Later reviews of his bank account documents
indicated deposits of nearly USD $40 million. XXXXXXXXXXXX
of the Comptroller,s Office, (protect) asserted to an Emboff
that the Comptroller,s Office (specifically Contreras)
covered up the fact that former President Flores was aware of
the embezzlement. Perla is in a French jail, and extradition
proceedings are well underway. Since the Comptroller,s
Office is constitutionally obligated to audit government
corporations like ANDA, and is allowed to examine the bank
accounts of major officials, the fact that they did not
detect the kickbacks is particularly disturbing.


6. (U) On June 10, leading daily "La Prensa Grafica"
announced that then Minister of Tourism Luis Cardenal,s
family business had won a bid to supply lumber for the
construction of 330 publicly-funded houses, although the
Contracts and Acquisitions law specifically prohibits bidding
on publicly-funded contracts by ministerial-level officials.
Minister Cardenal asserted that because the bid was submitted
by his family,s company--rather than him personally--the law
did not apply in the case. However, the Minister formally
resigned from office in June to avoid further controversy.
La Prensa Grafica reported September 27 that the
Comptroller,s Office has decided that the bidding process
was legal, but that there has been a lack of monitoring by
the contractor. The Comptroller,s Office further found that
Cardenal could participate as the legal representative of his
company. Members of all political parties took the stance
that the Comptroller,s Office is not authorized to make
interpretations of the law, and that the Minister should be
banned from participating in the bidding. At a September 28
roundtable on democratic institutions hosted by the
Salvadoran Foundation for Economic and Social Development
(FUSADES -- El Salvador's most prestigious think tank),
legislators, Supreme Court justices, academics, journalists,
and representatives of the business community were in
universal agreement that the current audit system is not
functioning, and that the Comptroller,s Office is in need of
significant reform. The critical views of the Comptroller,s
Office expressed at the FUSADES roundtable, mirror those of
most political analysts and Embassy interlocutors.

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Comment
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7. (C) Although there seems to be widespread agreement that
the Comptroller,s Office is not fulfilling its duties, there
appears to be little political will to audit the office or to
enact legislation to change the existing system. Potential
skeletons, past and present, among all political parties,
make it highly unlikely that the Comptroller,s Office will
be reformed any time soon. For its part, the PCN sees any
moves toward reform as a threat to its political power.
Although El Salvador has made substantial advances in its
democratic institutions in the past 15 years, one of its
Achilles heals is promoting and monitoring transparency.
Although there is an urgent need for the country to pass and
implement a strong ethics law, and create independent,
impartial offices that monitor corruption allegations, large
segments of the political class, especially National Assembly
legislators, prefer to stay in their comfort zone and make no
changes.
Barclay