Irregular Defence Ministry account queried by the AG in 2013
The Defence Ministry account at the Bank of Ceylon (BOC) – to deposit money from the sale of the old army headquarters land – was an irregular one, violated all financial regulations and was also queried by the Auditor General in end 2013, the Business Times learns.
Earlier this week, Finance Minister Ravi Karunanayake’s disclosure about former Defence Secretary Gotabhaya Rajapaksa maintaining an account at the BOC’s Taprobane branch with an initial sum of Rs. 20 billion was countered by the latter rejecting the claim, saying it was a ministry account meant to deposit money from the land sale and use for the construction of the army headquarters at Pelawatte.
However a Finance Ministry official told the Business Times that a government audit had queried the opening of an independent account and the Auditor General had made his observation on December 31, 2013 stating that the whole transaction was irregular.This was confirmed by a senior official of the Auditor General’s Department who said the department had detected the irregular transaction during their audit inspection. He said the money received from the Galle Face land deal should have been credited to the Treasury.
The sale of land yielded US$ 75 million (Rs. 8.3 billion) from Shangri La and a further $ 50 million (Rs. 5.4 billion) also from Shangri La and $ 54 million (Rs. 5.9 billion) by Avic. In another startling disclosure, the Business Times can now reveal that the government cancelled the land sale to Avic and returned this money.
However the $54 million refund came from the Economic Development Ministry account while the Defence Ministry continued to have this amount on its books and probably in the account.
In around mid-2011, the Business Times quoted senior Treasury officials as saying the Treasury had received the first instalment $75 million on the sale of these lands and the balance was being awaited. The newspaper carried several stories thereafter about the Treasury awaiting this money and this week it emerged that at the same time the balance money had been directly deposited in this particular Defence Ministry account.
Treasury officials said then Treasury Secretary Dr. P.B. Jayasundera may have been aware of this account because Senior Minister Sarath Amunugama (who was handling the finance portfolio) had stated in parliament that the balance money was received.
A senior treasury official, who declined to be named, said that under financial regulations all such monies of ministries and government departments must be sent to the Treasury and the Consolidated Fund. ‘It is only thereafter that it is transferred to the respective projects”.
The monies of the consolidated fund are in the custody of the Deputy Secretary to the Treasury who maintained accounts at two state banks. Project financing of ministries like constructing a new building – as in the case of the Defence Ministry – must come from these accounts following approval of parliament.
The normal legal and constitutional procedure was that the allocation of money for ministry or government department projects comes through the annual budget, and it is a very transparent process. All revenue and expenditure by the Government must be approved by Parliament and disbursed through the Consolidated Fund.
The Business Times learns that ministries cannot bypass the Treasury and take the money received by the sale of state-owned land and deposit in their own account. The Sri Lankan constitution does not have any provision for special cabinet approval to operate special accounts by ministries. In a statement to the media, Mr. Rajapaksa had said the account was opened based on cabinet approval.
Such an account can be operated only with parliamentary approval.
A ministry, minister or a secretary cannot operate the account depositing money of such land deals without parliamentary approval.
Several Treasury officials confirmed these facts and noted that this matter was under the carpet for more than three years.
According to 49 (1) of the Constitution on public finance, the funds of the Republic not allocated by law to specific purposes shall form one Consolidated Fund into which shall be paid the produce of all taxes, imposts, rates and duties and all other revenues, grants and receipts of the Republic not allocated to specific purposes.
In 49 (2) it is stated that the interest on the public debt, sinking fund payments, the costs, charges and expenses incidental to the collection, management and receipt of the Consolidated Fund and such other expenditure as Parliament may determine shall be charged on the Consolidated Fund.
When asked by the Business Times, Minister of Power and Energy Patali Champika Ranawaka, who is leading a campaign to look into the misdeeds of the former regime, said if a state property is sold, the funds should flow to consolidated fund,
Treasury sources also referred to comments to the media by Deputy Economic Development Minister Lakshman Yapa Abeywardane (over the years) that the ministry has not received the money, which should have been deposited with the Treasury. “We have been waiting for this money. Now it seems it had been directly sent to this account violating stated rules,” one source said.
Finance Minister Ravi Karunanayake said the Defence Ministry account at the Bank of Ceylon had a deposit of Rs. 20 billion from the proceeds of the sale of the Galle Face land to Shangri-La and Avic to build star class super luxury hotels. When the new Government took office, the account’s balance was Rs. 13 billion.