Sri Lanka’s Auditor General and Steve Jobs’ Garden Fence

In this weekly column on The Sunday Morning Business titled “The Coordination Problem”, the scholars and fellows associated with Advocata attempt to explore issues around economics, public policy, the institutions that govern them and their impact on our lives and society.

Originally appeared on The Morning

By Dhananath Fernando

A few days ago, I read up on an interesting anecdote from the life of Steve Jobs. When Steve was a child, his father had asked him to paint the fence around his house. Steve took the task up and painted the outside of the fence. When he proudly presented his hard work to his father, the father questioned why only the outside of the fence was painted. Steve replied: “Dad, no one sees the other side of the fence!”

To that, his dad responded: “Steve, but we will see it.” Many years later, when Steve briefed his engineering team on the deliverables of the Macintosh computer, he said to them: “I want the outside of the computer’s aesthetics and design to be outstanding. But I also want the inside of the computer to be more outstanding than the outside.” To that, his team responded: “Why do we need to spend so much time, effort, and money on the inside of the computer? No one really sees the inside!”

Steve replied: “But we will see it.”

The ongoing debate on the dilution of the Auditor General’s powers has reminded us of the need to paint both sides of our fence if we want to see a developed and prosperous Sri Lanka.

The development, prosperity, and progress we see in any society or institution are a result of structural changes, self-discipline, and systematic advances of working on an in-depth value system. That is why self-control is always better than state control.

Audits and checks and balances are unseen on the inside. What we see on the outside is a reflection of our society on the inside. Therefore, Sri Lankans not reaching our full potential is interconnected to the absence of many systems of accountability and transparency. Audits and checks and balances should come from within. What we see outside is merely a reflection of who we truly are on the inside. Sri Lankan society lags behind for this very reason, as we lack the many systems of accountability and transparency necessary for growth.

Systematic misgovernance

If you ask any Sri Lankan why their country is still developing, they will give you three reasons: corruption, waste, and misgovernance. What we see on the outside as low productivity, inefficiency, and delays are a result of a lack of accountability, transparency, audits, and checks and balances. This is not only valid for our public sector but also for our private sector.

In the context of the 20th Amendment, the proposed Clause 31 repeals article 153 (1) of the Constitution which mandated that the Auditor General be a qualified auditor subject to the approval of the Constitutional Council (CC), following which, s/he would be appointed by the President. The removal of this by the 20th Amendment opens the risk of appointing an Auditor General who wouldn’t possess the qualifications required for the position.

The risk of providing constitutional leeway in appointing an unqualified Auditor General is multidimensional. A greater degree of Sri Lanka’s corruption and crime is white-collar crime, and given the legal structure of Sri Lanka, even qualified auditors are finding it difficult to audit.

The VAT (value-added tax) scandal reported many years ago and the more recent Central Bank bond fiasco all indicate the enormous cost of ignoring simple processes, which when multiplied can cripple our entire economy. Unfortunately, the need for such processes only come into the limelight when things go wrong, while the positive results of having due process usually don’t make it to newspaper headlines.

Accountability is key

Even under the 19th Amendment, the Auditor General’s powers did not include the ability to audit state-owned enterprises (SOEs) incorporated through the Companies Act in which the government has a stake of less than 50%. Maintaining accountability in most of our gigantic SOEs that the Treasury has supported with taxpayer money has failed! Most SOEs have failed to produce even a basic annual report over the years for the benefit of the public, even though the revenue of some public enterprises is nearly half a trillion.

There are more than 500 SOEs of different scales which waste a colossal amount of taxpayer money, and there is no excuse that can be provided for not producing annual accounts when earning half a trillion rupees in revenue.

The space created by the 20th Amendment for SOEs to not get audited by the Auditor General will set a bad example for all businesses. The collective losses of only 16 strategic SOEs in 2018 amounted to Rs. 156.73 billion, which is equivalent to more than thrice (Rs. 47 billion in 2017) the expenditure of the Samurdhi Programme.

One may ask why corruption levels were still high with the Auditor General having the power to audit under the 19th Amendment, and when there were additional checks such as having an Opposition member heading the Committee on Public Enterprises (COPE) and opening COPE meetings to the media; it is true that neither the Auditor General nor opening COPE meetings to the media will solve all corruption problems within SOEs.

If the level of corruption and misgovernance was high even with the Auditor General’s powers under the 19th Amendment, imagine how the situation would be without such supervision. We sincerely hope that at the committee stage, matters pertaining to the transparency and accountability of SOEs will be taken seriously.

Improving systems and doing things better than we did in the past must be the way forward if we are serious about a “system change”. In order to strengthen governance, we should at least list strategic SOEs at the Colombo Stock Exchange (CSE) so that these institutions will have no choice but to adhere to the governance structure of the CSE. One other measure is to provide the Auditor General with more power to investigate SOEs incorporated through the Companies Act in which the government has less than 50% stake, as most SOEs have the practice of incorporating subsidiaries and sub-subsidiaries under the main SOE with different stakeholder arrangements.

In public policy, dismantling an existing accountability measure without an alternative could be highly problematic, given the level of corruption rooted in Sri Lankan society. Sri Lanka has dropped from 89th to 93rd in the Corruption Perception Index for 2019 by Transparency International.

If you observe any successful private company or society, there are systems and procedures that have been refined over the years with the advancement of technology to reach where they are today. Our attitude towards accountability measures has to change as a way of painting the fence on the inside even though no one sees it. Ultimately, what we see on the outside is what we build inside.

The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute.