“Laksala shops violate AR & FR”
Sri Lanka Handicrafts Board (Laksala) Chairman M. Hamza has sent the following letter with reference to our report last week headlined “Laksala shops violate AR & FR” which it says contained inaccuracies. Laksala’s response and the Business Times response is given below:
A) Business Times (BT) report: “Sri Lanka Handicrafts Board is offering up to 25 per cent commission for brokers who direct local and foreign consumers violating state financial regulations.”
Laksala response: The Sri Lanka Handicrafts Board was formed through the “National Craft Council and Allied Institutions Act, No. 35 of 1982”. Accordingly, the powers are vested with the Board of Directors to conduct its operations with the objective of marketing and promoting handicrafts that are manufactured locally.
The Board is vested with powers to take decisions and operate whilst making payments that are incidental for its operations. Any incidental expenses are for promotion, as empowered by the Act and do not violate AR/FR.
Sales promotional payments are made to registered tour guides and tour operators in line with industry norms. Furthermore, these payments are globally accepted business norms and all our competitors in the private sector follow this practice.
This practice of paying promotional expenses has been a standard practice at Laksala since its inception and currently the amount works out to around 10-12 per cent of our sales. We strongly refute the claim in your article of us offering up to 25 per cent commission for brokers to get foreign and local sales.
BT reply:
Making a certain payment to tour guides and tour operators for purchases from Laksala shops by tourists who were introduced by them to these shops cannot be classified as promotional expenses under the financial regulations. Any payment to outsiders (tour guides and tour operators) for purchases in these shops will be a commission for these persons.
The practice of paying commission classifying it as promotional expenses under the heading of incidental expenses is a violation of FR135, 136,137,138, and 139. Further a letter dated 26-08-2019 sent to Laksala Chairman by Director (HR&Admin) of Sri Lanka Handicrafts Board clarifying this matter has clearly stated in its heading that this was a payment of commission and nowhere it has been indicated as promotional expenses.
Making or obtaining a payment as a commission or promotional fee to a third party or aiding and abetting such transaction by a state institution is an offence under the section 20 and subsections (1) (VI) and(VII) of the Bribery Act.
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B) BT report: “The loss incurred by Laksala last year was Rs. 85.7 million and it was around 12 per cent of the total turnover of Rs. 737 million, Finance Ministry sources revealed.”
Laksala: According to the Audited Accounts for year ended 31 December 2018 by the Auditor General, Laksala did not incur a loss as alleged here but instead, made a profit of Rs 21.5 million before tax for the year ended 2018 after paying Rs 50 million as interest cost for substantial loans obtained in the past for various projects. We are perplexed as to how such a loss was calculated!
BT reply: This was the loss incurred by Laksala by making the so called promotional fee (commissions) to tour guides and tour operators.
C) BT report: “The present management functioning under the Ministry of Industry and Commerce should obtain the Treasury approval for a large expenditure from the turnover in accordance with government Administration and Financial regulations (AR and FRs), a senior ministry official said.”
Laksala: As per the S.44 and 45 of the Act, the Board is vested with sufficient powers to incur any expenditure of such nature and therefore Treasury approval is not required.
BT reply: In accordance with Financial Regulations, it is a compulsory requirement to submit an estimate of expenditure for the financial year for the approval of the Treasury.
D) BT report: “Making payments amounting to millions of rupees as commissions for Laksala brokers was a financial misappropriation and causing a massive loss to the government, he alleged.”
Laksala: Laksala does not transact with any ‘brokers’ in the course of any of its business dealings and neither it has any records of such transactions with any ‘brokers.’
BT reply: The word broker was used here instead of agents (third party such as tour operators and tour guides, etc).
E) BT report: “However as a commercial operation it has to formulate its own AR and FR in accordance with the National Crafts Council and the Allied Bodies Act 35 of 1982 Act, he said adding that this was not done so far.”
Laksala: As per the Board resolution dated 7 August 2019, Laksala has commenced formulation of its own Manual of Procedures and Policies which will also govern its AR & FR. This Manual will be formulated in collaboration with Sri Lanka Institute of Development Administration (SLIDA).
BT reply: As per the Board resolution dated 10-02-2016, Laksala should adhere to government AR and FR, disciplinary rules and regulations in terms of Chapter (XLV111) of section II of the Establishment Code.
F) BT report: “According to the 1962 Act of the National Crafts Council, there are 35 varieties of handicrafts in the island made from indigenous raw materials. Laksala is presently selling less than 10 of those varieties. Instead its outlets sell underwear, slippers, oils and cosmetics. Some 50 per cent of the goods sold at Laksala contravenes the Act, the ministry official disclosed pointing out that it is high time to amend the Act thereby enhancing the growth potential of the gift and souvenir category and adding value to the tourism sector.”
Laksala: Sri Lanka Handicrafts Board was formed under the “National Craft Council and Allied Institutions Act, No. 35 of 1982” and it is not clear which “1962 Act” that this article refers to. Even the 1982 Act does not specify “a specific number of varieties of products” to be sold by Laksala/Sri Lanka Handicrafts Board. Underwear is not sold by Laksala/Sri Lanka Handicrafts Board.
The product mix sold consists of arts and crafts 40 per cent, handloom and batik 20 per cent, gem and jewellery 20 per cent, leather and ceramics 8 per cent, and tea and spices 8 per cent.
BT reply: Laksala was established in the year 1964 under the Crafts Council Act of 1962 and it was incorporated as the Sri Lanka Handicrafts Board under the National Crafts Council and Allied Institutions Act No. 35 of 1982. This classification of items are in accordance with the 1962 Act and was not repealed even under the 1982 Act. Items currently being sold at Laksala were based on an independent survey, a copy of which is in the possession of the ministry.