fast-disbursing credit auditing
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Fast-disbursing Credit Auditing. Regulatory Framework. - PowerPoint PPT PresentationTRANSCRIPT
Fast-disbursing Credit Auditing
1
In Mexico, the contracting and use of resources stemming from
public debt transactions are ruled by the Political Constitution of
the United Mexican States, the General Public Debt Law, the Law
of Revenue, the Federal Law of Budget and Treasury
Responsibility and the Planning Law.
Regulatory Framework
2
Federal Government can use four general concepts to contract a
loan on the state’s credit:
• Productive public investment.
• Exchange or refinancing of Federal Treasury obligations.
• Dealing with an emergency declared by the President of Mexico.
• Monetary regulation.
Regulatory Framework
3
According to Public Debt Law, Federal Government can perform
credit transactions with:
• International Financing Bodies (IFB).
• National Commercial Bank.
• International Commercial Bank.
• International Monetary Fund and other international financial
cooperation bodies or which group central banks.
Institutions to contract a debt with
4
The Congress of the Union authorizes external and internal direct
net indebtedness sums for public financing of Federal Government
and government agencies. These sums are included in the
Revenue Law and its use must be approved in the Expenditures
Budget of the Federation.
Authorization
5
For making a loan, it is necessary to:
• Include, in the Expenditure Budget of the Federation, the sums
for financing projects.
• Contract credit for investment projects or productive activities.
• Assess the cost and benefit of investment projects to be
financed.
Requirement
6
(Cont.)
• Credits generate sufficient resources for their payment.
• Count on the adequate guarantees.
• That the borrowing bodies have sufficient payment capacity to
timely settle the commitments.
Requirements
7
The IFBs offer two basic types of loans:
• Long-term loans for investment projects.
• Fast-disbursing loans for development policies.
Credit Classification (IFB)
8
Through auditing, the Superior Audit Office has determined
irregularities in public debt policy and in contracting and use of
resources stemming from fast-disbursing loans for development
policies, contracted with IFBs.
Problems
9
Strategies and guidelines of debt policy presented in the National
Financial Program for Development (PRONAFIDE 2008-2012)
propose to use long-term debt in local currency to finance federal
government deficit, which does not fit in with the regulatory
framework for public debt contracting, that rules the use of
resources derived from transactions made on the credit of the
state.
Public policy problems
10
(Cont.)
Along the same lines, public policy is not in line with the Political
Constitution of the United Mexican States and with the General
Public Debt Law, because public debt policy envisages that
resources stemming from external financing can be applied in non-
controlled concepts.
Public policy problems
11
Three loans contracted with IFB have been audited
systematically in the last Public Accounts (2006, 2007 and 2008).
Revisions made to these credits have shown irregularities in
resources use and contracting because:
Loans problems
12
(Cont.)
• They are agreed on already made actions.
• Resources are not earmarked to investment projects or
profitable activities.
• Evidence to verify that the credit genered enough resources
for its payment is not provided.
Loans problems
13
(Cont.)
• Evidence to know the credit resources use is not provided.
• Consultig bodies in public credit do not analyze credit
planning, budgeting, practice and monitoring.
• Resources are poured in the Federation Treasury and its final
use is unknown.
Loans problems
14
Loans problems
Fast-disbursing loans
contracting is made
over already carried out
actions, what prevents
knowing resources
specific use and does
not allow its proper
auditing.
Agree on tangible
actions to be
performed with loans,
allowing identifying
the resources specific
use for its auditing.
What really happensWhat should be
15
Conclusion about loans problems
Credit’s virtue is to bring a future good to present, what cannot be
determined for fast-disbursing loans, because the resources use
and the expected outcome of their application are unknown.
16
Conclusion about loans problems
(Cont.)
The Superior Audit Office of Mexico considers that the Ministry of
Finance and Public Credit does not comply with normative
regulations relating to operation of consulting bodies on public debt
and the application of resources stemming from loans.
17
Conclusion about loans problems
(Cont.)
Likewise, terms agreed on contracts do not define the schedule of
meetings to exchange points of view on the achievements reached
during the program execution neither for writing reports about its
implementation.
18
Conclusion about loans problems
(Cont.)
Evidence of credits being allocated to investment projects or
productive activities was not obtained, studies to corroborate that
credits will generate enough resources for its payment were not
carried out; and, there was no evidence about resources being
allocated to development policies.
19
Proposal for a Public Debt Sustainability Audit
20
Auditing public debt sustainability in Mexico
As a result of the audit carried out by the Superior Audit Office
about the resulting debt of fast-disbursing loans, a discrepancy
between public policy and applicable legislation was found,
therefore, an audit on public debt sustainability in Mexico was
programmed.
21
The General Public Debt Law states that the Federal Executive and
its dependencies will be able to contract financing only through the
Ministry of Finance and Public Credit.
The decentralized sector and the development bank will be able to
contract external financing only with previous authorization of the
Ministry of Finance and Public Credit.
Regulatory Framework
22
The Political Constitution of the United Mexican States allows the
federal states and municipalities to contract obligations or loans as
long as they are not either contracting them with other nations
government, with societies or foreign private citizens, or paying with
a foreign currency or outside the national territory.
Regulatory framework
23
(Cont.)
Credits should be used in public and productive investments,
according to bases established by local legislative bodies for
specifical purposes and no higher than the amount yearly set in their
respective budgets.
Regulatory framework
24
According to the General Public Debt Law, the Ministry of Finance
and Public Credit is in charge of granting the Federal Government
guarantee to the credit transactions carried out with international
bodies of which Mexico is a member, or with public or private,
national or foreign entities.
Federal Government endorsement and guarantee
25
According to the Fiscal Coordination Law, federal participations
corresponding to federal entities or municipalities could be used to
guarantee obligations in case of non compliance or serve as a
means of payment of those obligations contracted with the
Federation, credit institutions operating in national territory or with
physical or moral Mexican nationals.
Federal Government endorsement and guarantee
26
Executing entities of resources stemming from public credit are:
• Federal Executive and its dependencies.
• Federal District Government.
• Decentralized public bodies.
• Companies with a majority government ownership.
Executors
27
(Cont.)
• Institutions rendering public banking and credit services
(development bank).
• National auxiliary credit organizations.
• National insurance and security institutions.
• Trusts in which the trustee is the Federal Government.
Executors
28
Objective
Assessing the Ministry of Finance and Public Credit performance in
terms of efficacy, effectiveness and economy in its transactions
regarding evolution and sustainability of financial and non-financial
liabilities constituting public debt and the public federal sector
federated entities and autonomous bodies contingencies.
29
Scope
The public and contingent debt balance as of December 31, 2009,
from public federal sector, public-state sector and autonomous
bodies.
30
Procedures
It will be proved that the financial program from the public sector
corresponding to the 2009 fiscal year, under which the public
debt was managed, including the provision of foreign currency
required for external debt management, was created.
31
Procedures
The monitoring mechanisms implemented by the Ministry of
Finance and Public Credit allowing to check the capacity of
payment of the entities that contract financing, performance of
approved financing programs, the adequate financial structure of
accredited entities and management resources stemming from
financing, will be reviewed.
32
Procedures
It will be reviewed that the destination of the contracted credits
observe the lines stated by the Federation Revenue Law for the
2009 fiscal year.
The balance integration, registry, interest rates, maturities and
changes in the last five years of the gross domestic debt will be
revised.
33
Procedures
The total of the state and municipal endorsed public debt, its
integration and registry, interest rates, maturities and its changes
in the last five years will be revised.
34
Procedures
The total of federal public sector laboral liabilities; that of the
state public sector, in accordance with the information offered by
the Ministry of Finances and Public Credit and that of the
autonomous bodies, its integration and registry, its changes in
the last five years, its accounting and the actuarial studies will be
revised.
35
Procedures
The total of the public sector endorsed obligations, its integration
and registry, and its changes in the last five years will be revised.
The total of the 1995 financial crisis debt, its integration and
registry, and its changes in the last five years will be revised.
36
Procedures
The total of the State Oil Company debt, its integration and
registry, and its changes in the last five years will be revised.
The total of the State Electricity Company debt, its integration
and registry, and its changes in the last five years will be revised.
37
Public Debt problems
38
From the previous analysis about public debt, we can observe that
the local indebtedness grew and divested in the exterior, and finally
a considerable part of these resources became available instead of
being allocated to material investments, the very same year in
which the biggest economic recession has happened in the country
since the 1930’s.
Public Debt problems
39
On the other hand, we can observe that the use of debt to fund the
deficit of the Federal Government is preferably used, when is
supposed to be allocated to the execution of projects, activities and
enterprises that support economic and social development plans,
that generate revenue for their payment, that are used for the
improvement of the structure or for effects of monetary regulation, as
established in the regulatory framework.
Public Debt problems
40
Finally, to evaluate the public debt sustainability, involves knowing
not only the federal sector total amounts, that are included in the
annual public account, but it is also important to know what is the
contingent debt, the endorsement granted to the states and
entities, what is the labor liabilities value and, most of all, to
assess the risk and consequences in which the country is to face
its obligations in relation to the financial cost and its repayment.