Plunder of public purse in absence of good governance

16 October 2021
Plunder of public purse in absence of good governance

Dr. Dhiman Chowdhury :
Available studies document higher government salaries and benefits in the developing countries than in the developed countries. In Sri Lanka, during 2017, budgeted allowances and travelling expenses were 61.2% of total salaries. There is higher interest benefit on provident fund for government employees in Bangladesh and Pakistan. Interest-free car loan and monthly allowance of around 100% percent of basic salary are given to officers of certain positions. Fringe benefits in Senegal and Nigeria constitute 35% to 100% of basic pay. Many government agencies are exempt from corporate tax (profit/surplus tax) resulting over consumption of perquisites by their management from the excess free cash flow. In the developing countries like Bangladesh, Pakistan, India, and Myanmar where informal sector constitutes more than 80%, there are no such fringe benefits.
Most of the public sector has monopoly. Government provides higher pay to civil service to participate in vote producing activities. During 1990s, average central government wage as multiple of per capita in OECD was 1.6. In Asia, it was 3.8 times. Similar benefits exist in Africa. Average wages and salaries during 2000-16 as a percentage of total expenditures were 27.1% in Bahrain, 27.5% in Brazil, 43.6% in Iraq, and 49% in Saudi Arabia (IMF 2018). Private sector relied heavily on merit-pay, pay for performance, bonuses, profit-sharing, and share-related benefits. Public employees receive increasing fringe benefits over wages because the costs are less transparent to the community. Average public-private gap in life time career pay is close to zero in several major European countries such as Germany, France, and UK. Public sector jobs are typically more stable that explain a large share of the private-public pay gap.
Countries with higher knowledgebase, competitiveness, and government effectiveness (broadly knowledge-base as per UNDP, UNESCO, WIPO, World Bank) like UK, Canada, US, and UAE give lower pay in the public sector up to 20% of total government expenditure whereas low knowledgebase countries in South Asia, Africa, Middle East, South America pay more than 20%. Developed countries rank within 20; India, Sri Lanka, Vietnam, Indonesia, Thailand, Philippines, South Africa, and Saudi Arabia stand in the middle (40 to 80); and Bangladesh, Nepal, Lao, Cambodia, Myanmar rank more than 100. Knowledgebase in a broader sense also includes disclosure of information particularly financial information, composition of the board of directors, quality of CEO's report, role of public accounts committee, and faith versus reason. Bangladesh, Pakistan, Indonesia, Sri Lanka, and Saudi Arabia are highly faith-based and have a ministry of religious affairs. There are some mixed results however, for example, Nepal with low knowledgebase pay lower. Thailand, Philippines, Vietnam, South Africa, Brazil, Saudi Arabia, Chile being in the middle ranking pay higher. Again Australia and New Zealand ranking higher pay higher. Government effectiveness (governance indicators) which proxies for the institutional quality of the public sector, is negatively related to the wage gap. In India, the difference is high, public sector premium ranges between 62% to 102% over the formal private sector, and between164% and 259% over informal-casual sector depending on methodology.
Public Accounts Committees (PAC), the most important among the parliamentary standing committees are unable in the developing countries to discuss audit reports promptly-there are long time lags between years of accounts and timing of discussion of an audit report. The recommendations of PACs are redundant, time-barred or irrelevant. In UK, India and Canada, an MP from the main opposition party chairs the PACs. Bangladesh PACs are chaired by the government MPs. The reports of the PACs of the developed countries including Australia, New Zealand and Canada are available online. Thailand, Vietnam, Indonesia, Bangladesh, Nepal, Myanmar, Cambodia, and Laos PAC reports are not available.
Even the universities with the most leaned people whose purpose is knowledge creation and dissemination do not disclose enough in the developing countries. The largest public universities like Oxford University (UK), ANU (Australia), University of Auckland (New Zealand), University of Michigan (USA) and University of Toronto (Canada), Delhi University (India), University of Colombo (Sri Lanka), and Universitas Indonesia (Indonesia) disclose financial statements according to international accounting standards. Dhaka University (Bangladesh), Mohidol University (Thailand), and Vietnam National University (Vietnam)do not disclose financial statements but disclose some revenue, expense, and asset items. Dhaka University annual report starts with a preface from the Vice-Chancellor. It states how the report has been prepared, and who helped this process. Nothing is there about the performance of the university compared to past or compared to other universities, strengths and weaknesses of the year, strategies, new plans and programs. King Abdulaziz University does not public its financial statements in its 224 pages annual report. UAE University VC's report has two non-financial information and short unclassified financial statements without notes. In South America, Brazil's University of Sao Paulo CEO report gives three-non-financial information but no financial information. The Annual Report 2019 has information on total assets, and four types of revenue but nothing on expenditure, and there are no financial statements. Universidad de Chile and Addis Ababa University of Ethiopia do not disclose financial statements or any report from their rectors.
Nationally important public sector agencies: supreme audit institution and tax office have financial statements in their annual reports online for UK, Australia, New Zealand, and Canada. Their boards have majority members as independent members in the UK. Australia and New Zealand do not have independent members in their boards but they have an independent audit and risk committee composed of independent members with professional accountancy qualifications. In South Asia, only Indonesia was found to have its financial statements available online. However, its revenue office's revenue and expenditure account came only with five lines and its balance sheet is irregular. Philippines revenue office has its income statement and balance sheet published online but its board does not have any independent members. India's CAG publishes Union and State finances and appropriations but not its own statement of operations and balance sheet. The boards do not have any independent non-executive members. The Middle East, Brazil, Chile do not public their annual report and financial statements. South African Auditor General and Revenue Service both have independent non-executive members in their management and audit committees, and also disclose corporate-type financial statements but Ethiopian counterparts do not disclose these at all.
(Dhiman Chowdhury, PhD, Lancaster is Professor of Accounting, Dhaka University).

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