Cablegate: Sri Lanka Transparency of Budgets/Military

This record is a partial extract of the original cable. The full text of the original cable is not available.

240959Z Nov 04




E.O 12958: N/A

Ref: STATE 239929


A. General Overview of Auditing Procedures:

2. In Sri Lanka, the Auditor General (AG), a
civilian authority, audits military expenditures as
well as expenditure of all other government agencies.
The Constitution provides for the appointment of the
AG by the President. The AG has assigned audit units
to the three armed forces and the Ministry of
Defense. They carry out an annual audit of each
department supported by a continuous audit process.

3. The audits are performed according to guidelines
established by the Auditor General's Department and
the Treasury (including Financial Regulations of the
Government). There are no special audit frameworks
for military audits. Audit reports (i.e. performance
audit reports) for the armed forces and the defense
ministry are sent to the legislature (Parliament).
They are not published for public scrutiny although
audit reports for government agencies are required to
be published (Mano, what does this mean? Please
clarify - are they not published due to lack of
resources or simply a failure to fulfill their
obligations?). The Public Accounts Committee (PAC),
a standing committee of the Parliament, reviews the
accounts and can call the armed forces chiefs and the
Defense Secretary for discussions. PAC deliberations
are not open to the public. More detailed confidential
management reports are sent to the Secretary to the
Ministry of Defense (a civilian) and the heads of the
three armed forces. PAC can call for Management reports
prepared by the Auditor General's Department.

4. The World Bank's Country financial accountability
assessment study for Sri Lanka (published in 2003)
found public audit (in general) in Sri Lanka to be
weak and identified quality, relevance, and
timeliness of audit information as areas needing
improvement. The study also stated that defense
expenditures were exempted from audit in the recent
past by invoking a special provision in the
Government Financial Regulation citing national
security interests and Auditor General was denied
access to records. We understand that audits were
carried out, but certain expenditures were not
audited. (see para B. below)

B. The Military Budget and On-Budget and Off-Budget
Revenues and Expenses

5. The Government of Sri Lanka's defense budget
includes the budgets of the three armed forces (Army,
Navy and Air Force). Police are under the budget of
the Ministry of Public Security, Law and Order.

6. The Financial Regulations of the Government
allows the President to approve "secret payments" in
the interest of national security. The Auditor
General does not audit these payments and has to rely
on a certification by the President and Finance
Minister. Sources at the Sri Lanka Chapter of the
Transparency International see this and the provision
for single source procurement in the armed forces,
which are not examined meaningfully by the Auditor
General's Department, as key weaknesses in the
auditing process of military budgets. Further
confirming shortcomings in military accountability,
in 2002, the Government had to meet several
unbudgeted (unaccounted) defense bills incurred in
previous years (under another regime).

C. Military Component of the National Budget

7. The military component of the Government of Sri
Lanka budget continues to hold a very important
position and accounts for a substantial portion of
government expenditure, due to the civil war in Sri
Lanka. Following the 2002 ceasefire agreement
between the Liberation Tigers for Tamil Ealam (LTTE)
and the Government of Sri Lanka, the war situation
has eased and the Government has been able to reign
in military spending to some extent. However, as the
LTTE has not yet given up arms and territory and not
fully given up terrorist activities the Government
continues to allocate large sums for defense and has
not demobilized combatants. The defense expenditure
accounts for 10 percent of total government
expenditure (2005 proposed) or about 2.48% of GDP. A
parliamentary debate of the defense expenditure takes
place following the annual budget presentation.

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