Failed to perform audit on CBSL debt management for years: Auditor General

- AG says no withdrawal of single word from ‘report’

- Exclusion of Direct Placements Method without alternation incurred huge losses

- Questions arise on EPF’s capability in long term investment

- Perpetual obtained 60% from exceeded bids accepted at March 29, 2016 auction

- Government borrowed Rs 4.7 trillion using DPM in last eight years

By Shehan Chamika Silva

The Auditor General’s Department had not conducted a single audit relating to the domestic debt management at Central Bank of Sri Lanka (CBSL) over the years in relation to the Government Securities, revealed in the Commission today.

Nondisclosure of data relating to Government Securities by the Public Debt Department of CBSL was the cause for such failure, said Auditor General, Gamini Wijesinghe.

When questioned by the Commission, Auditor General told that the Auditor General’s Department originally had attempted to audit the CBSL procedures in 2004, but there was a conflict with CBSL officials regarding the disclosure of market transactions details on the basis of ‘Secrecy’ policy.

After the first attempt of the Department to audit CBSL procedures, the Finance Ministry had sought opinion on Attorney General and subsequently, the Attorney General issuing a clarification in the same year (2004) had prevented obtaining secret details from the CBSL, Mr. Gamini Wijesinghe said.

However, during the cross examination conducted by Counsel Harsha Fernando, who appeared for the interests of chairman of the Tender Board, it was discovered that the Attorney General’s clarification (in 2004) on the issue contained no such prevention to obtain certain secret information from the CBSL in expectation of preparing an Audit Report by the Auditor General.

Consequently, SC Justice Prasanna Jayawardena questioned the witness as to why the Auditor General’s Department failed to conduct an audit over the CBSL proceedings since 2004, because there was no legal barrier to do so as said by the Attorney General in 2004.

In reply, Mr. Wijesinghe was of the view that the Auditor General’s Department had continuously made many efforts to obtain details from the CBSL even after 2004, nevertheless failed and faced many impediments as the reluctance of the CBSL officials.

However, the Auditor General also told the Commission that he needs more time to confirm on their attempts made to obtain details from the CBSL after 2004.

Despite the initial reluctances of the CBSL officials the information relating to market transactions relating to period February, 2015 to March, 2016 were given to the Auditor General by the CBSL ultimately to prepare the Audit Report on the controversial bond issuances.

During the proceedings it was also revealed that Government’s debt borrowed using Direct Placement Method was approximately Rs. 4.7 trillion during the time period of 2008 – 2005.

Meanwhile, during the cross examination conducted by Nihal Fernando PC, who appeared for the Perpetual Treasuries, Mr. Wijesinghe said Monetary Board and the officials at the Public Debt Department should be responsible over the failure to issue treasury bonds at least cost to the state, because without replacing a alternation method, the exclusion Direct Placement Method incurred huge loss to the government.

During the further cross examination on the EPF’s participation in the bond auction took place in February 27, 2015, it was revealed, that despite EPF’s sufficient fund availability stated on daily cash flows, the potential actual capability in investing long term bonds (30 year bonds) at the auction was questionable.

It was also explained at the cross examination regarding the March 29, 2016 bond auction, that the value of the bids offered by the CBSL initially at the auction was Rs. 40 billion but had unusually accepted Rs. 77.732 billion bids exceeding Rs.37.732 billion ,and out of that exceed amount the Perpetual Treasuries Ltd had obtained 60 %.

And also the Perpetual Treasuries Ltd had obtained Rs. 26.41 billion out of the total issuance of Rs. 77.732 billion at the auction held on March 29, 2016.

President’s Counsel Nihal Fernando concluding his cross examination suggested that the Auditor General’s report was prepared with enormous errors and thereby it had affected the Financial Market of the country, Foreign Investors and the Perpetual Treasuries Ltd inappropriately.

Refusing the submission, the Auditor General emphasized that his report was prepared with responsibly and accuracy and therefore he would not withdraw a single word out of the Special Audit Report submitted to the Parliament on the controversial bond issue.

The Commission which was appointed by the President comprised with Supreme Court Judges Kankanithanthri T. Chitrasiri, Prasanna Sujeewa Jayawardena and former Deputy Auditor General Kandasamy Velupillai to inquire into the Treasury Bond issue will resume tomorrow.