US embassy cable - 04TEGUCIGALPA2724

UNCLAS TEGUCIGALPA 002724 
 
SIPDIS 
 
TREASURY FOR OASIA/MDM:JFRANCO AND DDOUGLASS 
STATE FOR EB/IFD/OMA:LGALLAGHER 
STATE FOR EB/TPP/MTA/MST, IO/T, AND WHA/CEN 
 
E.O. 12958: N/A 
TAGS: EFIN, EAID, HO 
SUBJECT: HONDURAS: TRANSPARENCY OF BUDGETS/MILITARY SPENDING 
 
REF: State 239929 
 
1.  The following answers are keyed to the questions in 
reftel: 
 
A. General Overview of Auditing Procedures: 
 
1,2,3,4:  Responsibility for auditing Honduran military 
expenditures lies with a civilian Auditor who is named by 
the President and works for the Ministry of Defense (MOD). 
Underneath him works the Paymaster, who is also a civilian. 
 
Each branch of the military service (Army, Navy, and Air 
Force) has its own Paymaster section, and within each there 
is an Audit Department responsible for continuously auditing 
all its expenditures.  The MOD's Paymaster then audits the 
services' reports and reports to the MOD's Auditor who has 
overall responsibility.  Once all internal auditing is 
complete, the MOD is responsible for reporting findings to 
the President.  Usually this is done at the end of the 
calendar year. 
 
Additionally, the Supreme Court of Accounts (Tribunal 
Superior de Cuentas or TSC, a national hybrid general 
accounting and public ethics office established in 2002), is 
nominally responsible for conducting audits of all 
government ministries, including the MOD. 
 
5.  Yes; auditing is done continuously.  All subordinate 
elements must present an expenditure report (with purchase 
receipts) on a monthly basis.  If not provided, funds for 
the following month will not be allocated.  Each service has 
an account with the Central Bank; no cash is handled at the 
service level.  If a purchase is required, an order is 
generated to request a check from the Central Bank; these 
purchases are matched against existing budget lines, and 
appropriate deductions are made.  Once receipts are 
provided, the Central Bank provides the checks.  Generally 
the services' paymaster's offices have established relations 
with several civilian providers who provide required items 
on a credit basis. 
 
6.  As described above, Post believes that Honduras does 
indeed have a "functioning system for reporting audits of 
military expenditures to civilian authorities," which is 
established by law.  The only problem identified with the 
procedures is the turnaround time that the services must 
wait to receive checks from the Central Bank in order to pay 
their creditors.  This delay exists as a result of the way 
the system is currently organized and does not represent a 
lack of transparency or indicate any intentional 
unwillingness to be transparent on military expenditures. 
 
B.  The Military Budget and On-budget and Off-budget 
Revenues and Expenses 
 
1.  The country's defense budget includes only the military. 
The budget for the National Police is the responsibility of 
the Ministry of Public Security. 
 
2.  If a contingency arises which would require off-budget 
military spending (participation in Iraq or Haiti, response 
to a natural disaster, etc.), the MOD can request additional 
funding from Congress.  If approved by Congress, these 
additional expenditures would be audited in the manner 
described above. 
 
C. The Military Component of the National Budget 
 
1.  Yes.  In 2003 the MOD's budget comprised 2.7 percent of 
the national budget, and 0.8 percent of GDP.  By contrast, 
the Ministries of Education and Health received a combined 
42 percent of the national budget, or 12 percent of GDP. 
 
2.  Yes.  Preparation of the military's budget begins with 
each service chief, who is responsible for formulating his 
service's respective budget.  The MOD then approves the 
proposed budgets, consolidates them, and submits them to 
Congress for final approval.  Once Congress approves all 
ministries' budgets, it formulates the National Budget. 
Congress is expected to approve the 2005 National Budget on 
or about December 13. 
 
Palmer