Prime Minister on the Report of the Director of Audit on the Poverty Reduction Fund - May 16, 2000

Prime Minister and Minister of Finance and Economic Affairs

Into the Operations of The Poverty Reduction Fund

Mr Speaker,

You will recall that in April of 1998, the Poverty Reduction Fund (PRF) was enacted by this Honourable House.

The Objectives of the Fund, as stated in Part II Section 5 of the Act No 7 of 1998, include:

· Establishing a mechanism for delivering basic human services and infrastructure to the poor and the needy in their communities through non-Governmental organisations (NGOs) and community based organisations;

· Financing small scale projects in basic infrastructure and small productive activities;

· Providing assistance for the improvement of living conditions, promotion of community participation and improvement of infrastructure for health and education; and

· Providing assistance or employment opportunities to poor and needy persons to alleviate socio-economic hardship or otherwise.

You will recall, Mr Speaker, that the Fund was established by this administration with the specific intent of addressing, first in the short term, the alleviation and reduction and, hopefully in the long run, the eventual eradication of the types of poverty levels that today exist in our country.

Since the establishment, the Fund has embarked on successful projects in several communities that have resulted in provision of short-term employment for many. Its work and its initiatives have served to restore and reinforce in many the importance of the principle of community service through self-help.

Mr Speaker,

I have myself witnessed the type of anxiety and exuberance that comes from people in their communities when they are encouraged to help themselves, with a little help from others.

But as Members of this Honourable House well know, tackling poverty is not only about building retaining walls and footpaths, upgrading roads, building community centres and nursery schools. Important as these functions are, poverty reduction also requires doing things that will have a positive and permanent impact on the poor.

It means therefore that we have to be creative in our concepts and crystallize ideas that will result in alleviating the condition of the poor and reducing their poverty levels.

It means that we have to find ways and means of conceptualising and implementing projects and activities that will result in making the poor less dependent on others and more independent. Simply put, it means that we would have to put in place measures and mechanisms that will result in people being more self-sufficient. It means that instead of trying to reduce someone’s poverty with daily, weekly or monthly handouts, ways would have to be found to encourage self-sustainable livelihoods.

All of this can be done, for example, by starting people or community groups off on a project that will eventually result in creation of sustainable employment or even enhance their capacity to eventually employ others as well.

In cases like these, we would have addressed and tackled the poverty situation in as meaningful a way as the Chinese proverb that says: "Rather than give a man a fish every day, teach him how to fish."

The Poverty Reduction Fund, having tested the proverbial waters, is now at the stage where it can teach people to fish for their lives. Now that more people throughout the country know of the existence of and purpose for the Fund, the number of people needing and expressing an interest in learning how to help themselves out of the mire of poverty, has increased considerably.

THE AUDIT REPORTS

Mr Speaker, in our proceedings later today, I shall lay before this Honourable House the Audited Report of the Poverty Reduction Fund and a report of the Director of Audit on the Poverty Reduction Fund.

The Audited Report of the Poverty Reduction Fund was prepared by Skeete and Boland, Chartered Accounts, and will be laid before this Honourable House in accordance with section 21 of the Poverty Reduction Fund Act, No of 19 of 1998.

The second report, that is, the reported prepared by the Director of Audit, is not mandated by the Act, but will be laid before this Honourable House in fulfilment of an obligation made by the Minister of Finance & Economic Affairs and to demonstrate that this Government took prompt action when certain allegations about the operations of the Fund surfaced in the public domain.

Consequent upon the various allegations, the Prime Minister and Minister of Finance requested the Director of Audit to conduct an audit of the entire operation of this vital institution. The audit covered the period from April 1998 to October 1999 and a Report was submitted in November 1999.

When the Leader of the United Workers Party made his call for an audit and investigation into the working of the Poverty Reduction Fund, Government had not only carried out the audit, but had proceeded to insist on the implementation of its recommendations of the Audit.

Let me make it clear that Government is under no legal obligation to present and make public the report of the Director of Audit. However, consistent with our policy of transparency, accountability and openness, the full report is being tabled in this Honourable House.

I am sure that Honourable Members will be satisfied that contrary to the claims and charges, the Government of St. Lucia has had absolutely nothing to hide regarding the Poverty Reduction Fund. To the contrary, information was available to the press from very early in the day, as could have been seen from a full and comprehensive report on the audit and its findings which was published in the December 24, 1999 issue of the STAR newspaper, at Page 20.

The Director of Audit was asked to focus on five issues that were considered to be the most significant. They included:

(1) Compliance with Mandate and Authority;

(2) Verification of Assets;

(3) Policies and Procedures for the Procurement of Goods and Services;

(4) Verification of Expenditure; and the operations of the

(5) James Belgrave Enterprise Fund.

Mr Speaker,

The findings and recommendations of the report of the Director of Audit were submitted to the Minister of Finance in November 1999.

Contrary to the fascinating tales and rumours that have followed the audit and the submission of its findings, Honourable Members will note that there has been no misappropriation of funds. The Auditors did find, however, that there were several administrative lapses and infelicities, which, if left unchecked would have produced embarrassing consequences.

The main findings in relation to the five (5) issues which were addressed by Audit during the examination are as follows:

1 Compliance with Mandate and Authority

The Board of Directors of the Poverty Reduction Fund have not functioned as the policy making organ of The Poverty Reduction Fund as required by Section 9(1) of the Poverty Reduction Fund Act.

2 Verification of Assets

Not all assets purchased by the Poverty Reduction Fund were available at the entity during the physical count by Audit. However they were subsequently made available.

3 Policies and Procedures for the Procurement of Goods and Services

There are no policies and procedures in place at the Poverty Reduction Fund for procurement of goods

and services.

4 Verification of Expenditure

(a) There are no controls in place over the use of telephones at the Poverty Reduction Fund;

(b) Expenditure on behalf of both Poverty Reduction Fund and Basic Needs Trust Fund borne by the Poverty Reduction Fund only;

(c) Fuel is being purchased with the use of fuel vouchers, however no bills are submitted to account for the quantity received;

(d) An officer is being paid fixed mileage allowance;

(e) Two members of the Board were paid stipends for the month of April, although no Board meeting was held for that month;

(f) Staff loans and advances were issued without the approval of the Board;

(g) There is a discrepancy in the rates of stipends paid to the Chairman and Board members;

(h) Overpayment of salary to staff are still outstanding.

2 James Belgrave Enterprise Fund (J.B.E.F.)

Audit saw no policies/procedures under which the James Belgrave Enterprise Fund should operate."

This finding, Mr Speaker, is understandable, since this Fund was announced in the 1999/2000 Budget and the Fund was engaged in developing the policies and procedures

The work of the Director of Audit would have been incomplete without recommendations. According to the Director of Audit:

"to facilitate accountability and good governance in the operations of the Poverty Reduction Fund all efforts

should be made to ensure the following:

(1) the Board has the necessary knowledge, ability and commitment to fulfil its responsibilities under the Act;

(2) The Board functions as the policy making organ of the Poverty Reduction Fund;

(3) The responsibility of the Board and Executive Director are clearly defined;

(4) The Board is not merely a rubber stamp for management by performing a legitimising function;

(5) There is a system in place for managing projects/contracts, with adequate controls to ensure transparency and accountability;

(6) The Board and the Executive Director takes the necessary action to ensure the objectives of the Poverty Reduction Fund are met."

Mr Speaker, I am pleased to inform Honourable Members that all the problems identified in the Audit Report have been addressed and resolved.

Consequent upon the appointment of the new minister with responsibility for Planning, the former Board of Directors opted for a collective, early resignation in order to give the new minister a free hand. In any event, the tenure of the former Board was due to expire on May 31, 2000. A new Chairman and Board of Directors has now been appointed to manage the affairs of the Fund.

The new Board, under the Chairmanship of well-known trade unionist, Mr Lawrence Poyotte, has already held its first meeting. It is also developing a priority list of matters and measures to be addressed and taken, both as a consequence of the Auditor’s Report and in keeping with the need to tighten-up the administrative and operational capacity of the institution itself.

The Fund itself is well poised for the future. The World Bank continues to be impressed with the concept and philosophy of the Fund as designed by the Government and continues to support its objectives. In this regard, the Bank has approved continued funding for the Poverty Reduction Fund’s activities here.

A recent World Bank Mission to St. Lucia expressed general satisfaction with the progress made in operationalising the Poverty Reduction Fund (PRF), but is clearly anxious, as we are, to ensure that the traditional model of Social Investment Funds that have been widely utilised in Latin America and Africa, is adapted to the St. Lucia context.

This is the true value of the World Bank Loan. The modality that is being adopted, the "Learning and Innovation Loan", provides us with the opportunity of "learing by doing". Not only does it enable us to fulfil the general objective of testing the application of a social fund model in a small island state, but it will facilitate other specific learning opportunities for example:

How to combine the advantages of an autonomous operational structure with the desire to ensure that the Poverty Reduction Fund fits squarely with our overall national plan for addressing poverty;

Which design and implementation options should be adopted (e.g. which type of projects should the Poverty Reduction Fund implement, how do you target specific communities and groups, etc).

Over the course of the next four (4) months, the World Bank will be assisting the Poverty Reduction Fund in answering these types of questions. Already they have assisted the Poverty Reduction Fund in the preparation of a Financial Procedures Manual which will enable the organisation to generate the type of financial and accounting information that will in turn, allow the Poverty Reduction Fund to meet its fiduciary responsibility to the World Bank, Government of Saint Lucia, Board of Directors and ultimately the people of St. Lucia. This manual was finalised and approved by the Bank in June of last year.

Most recently (last month), the Poverty Reduction Fund again with input from the World Bank commissioned a Social Assessment Study which will again inform decision making as it relates to refining the operational structure of the Fund. The overall objective of this Social Assessment was to engender greater understanding of community level social dynamics so as to determine how best to involve communities as partners in a demand-driven social investment programme.

At the end of this four month period, the following outputs are expected:

An Operations Manual outlining in detail, the procedures and guidelines governing the Poverty Reduction Fund’s project cycle management;

The establishment of a Management Information System;

The establishment of a Monitoring and Evaluation system

Clearly, all of these steps are designed to ensure that the Poverty Reduction Fund ultimately becomes a more effective instrument in our fight against poverty. I want to stress that this is a new entity, new to this region and consequently mistakes will made. What is however of greater importance is that a mechanism is in place to ensure that the lessons, good and bad, can be utilised to further enhance the operations of the Poverty Reduction Fund. Ultimately this is the most important lesson of all.

I have no doubt, Mr Speaker, that the full implementation of the recommendations of the Director of Audit, coupled with the government’s own resolve to continue to build and strengthen its institutional capacity, will go a long way towards making the Poverty Reduction Fund into what it was intended to be: the main plank in Government’s strategy to address the poverty question throughout the nation.

Mr Speaker, I thank you.

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