LIBERIA: GOL AUDITS REVEAL PROBLEMS BUT ALSO DEMONSTRATE

UNCLAS SECTION 01 OF 02 MONROVIA 000936 SENSITIVE SIPDIS E.O.12958: N/A TAGS: PGOV ECON EFIN LI SUBJECT: LIBERIA: GOL AUDITS REVEAL PROBLEMS BUT ALSO DEMONSTRATE TRANSPARENCY - WILL ACCOUNTABILITY FOLLOW? REF: A: 07 MONROVIA 804; B: 07 MONROVIA 737 ¶1. (U) SUMMARY: In an important display of improved economic governance, Liberia's independent General Accounting Commission (GAC) completed and published the first audit reports of GOL institutions since the re-establishment of the GAC in 2005. Audits of several other key government institutions are expected in coming months. The audits are thorough and reveal significant systemic weaknesses as well as likely instances of fraud. The long-awaited audits will test the government's commitment to reform as the President has vowed to take action when warranted by GAC findings of mismanagement or corruption. Publication of the audits is a milestone in Liberia's efforts to create a system of fiscal and operational accountability, transparency and probity, but the audit results suggest a long road ahead for public financial management reform. END SUMMARY. ¶2. (U) The GAC formally submitted final audits in October for the National Social Security and Welfare Corporation (NASSCORP) for 2005-06 and 2006-07; the National Housing Authority (NHA) for 2006-07; the Independent National Commission on Human Rights (INCHR) for 2006-07; and a transactional audit of the concession to dispose of scrap iron from Bong Mines. The reports ar thorough and professional, highlighting a range of deficiencies ranging from procedural weaknesses (lack of accounting policies, inadequate documentation, undisclosed revenues, and failure to reconcile bank statements) to more serious financial irregularities (public guarantees for private loans, improper accounting, unauthorized procurements and irregular payments). Most press accounts have focused on a few of the most salacious and simple findings (missing cars and exorbitant Board fees) but the full reports are sober, well-documented, and published in their entirety on the GAC website: http://www.gacliberia.com. ¶3. (U) The GAC is finalizing several more audit reports of key institutions expected in the coming months, including: -- Ministry of Finance - overall audit of the Ministry for 2005-06 and 2006-07, including separate reports on the consolidated revenue account and transactional audits of the fiscal outturn for 2006-07; -- Ministry of Education; -- Ministry of Health; -- Ministry of Lands, Mines and Energy; -- Ministry of Public Works; -- National Lotteries; -- Liberia Petroleum Refining Corporation; -- County Development Funds; -- Monrovia Transport Authority; -- National Port Authority; -- Buchanan Iron Ore scrap contracts; -- Liberia Telecommunication Authority; -- National Oil Company of Liberia. ¶4. (SBU) The long-awaited audits arrive roughly 18 months after Auditor General John Morlu began work in April 2007 as part of a Governance and Economic Management Assistance Program (GEMAP) funded project to reform the GAC. Morlu came under fire in June 2007 for his high profile in the press and a series of sweeping accusations of corruption within the Sirleaf administration (reftels). He was also criticized for the delay in producing any actionable audits. Morlu defended his decision to focus his first year on an extensive internal capacity-building program for the GAC, including the drafting of a legal framework for the GAC in line with international standards, a strategic plan, a comprehensive recruiting and training program for 127 staff (all new hires),a code of conduct for GAC employees, audit manuals and templates for Ministries and Agencies, and partnership with international audit associations. All the initial audits were completed with assistance from Auditor Generals in Ghana and Zambia. ¶5. (SBU) The initial audits highlight the overall weakness in Liberia's public financial management systems and practices. Morlu told Econoff November 13 that internal control and accounting weaknesses were widespread and institutions being audited had almost no idea what records were required. He acknowledged the audit exercise would be a long-term "learning process" for both the GAC MONROVIA 00000936 002 OF 002 and the agencies it audits. While Morlu showed little patience for unqualified accountants and sloppy accounting, he did commend those institutions that demonstrated a willingness to learn. He singled out Deputy Minister of Finance for Revenue (MOR) Elfreida Tamba for her sincere efforts to collaborate with the GAC to uncover problems and seek improvement. ¶6. (SBU) COMMENT: The GAC audits are one of the most critical elements of GEMAP and the GOL's own efforts to institute sound financial management and good governance. Publication of the first audits is a milestone and upcoming audits of key Ministries are an important heavily indebted poor country requirement. However, the audits are only half of the equation and the GOL's ultimate commitment to reform will be measured by the extent to which it follows through on audit findings on both a political and technical level. Politically, the audits will be a test of the government's commitment to reform as the President has repeatedly vowed to take action when audits uncover mismanagement or impropriety. For the institutions audited, the reports are an opportunity to demonstrate a willingness to modernize. Although the press will likely continue to focus on malfeasance, the audits are more a baseline snapshot of institutional weakness at the launch of the Sirleaf administration than a reflection of the current situation. The important indicator will be the GOL's ability to continue to improve public financial management systems. For the Auditor General, the audits are a vindication of his strategic vision for the GAC. Initially viewed as obstinate, Morlu's tenacity now shows impressive results. The test for Morlu will be how he can weather the inevitable backlash from those whose weaknesses and improprieties have been exposed. END COMMENT. THOMAS-GREENFIELD