US embassy cable - 05SANSALVADOR2930

C O N F I D E N T I A L SECTION 01 OF 03 SAN SALVADOR 002930 
 
SIPDIS 
 
E.O. 12958: DECL: 09/28/2015 
TAGS: PGOV, KCOR, ES 
SUBJECT: EL SALVADOR'S COMPTROLLER'S OFFICE, A WEAK 
INSTITUTIONAL LINK 
 
 
Classified By: DCM Michael A. Butler for reasons 1.4(b) & (d) 
 
1. (C)  Summary:  El Salvador's supreme audit institution is 
the Comptroller,s Office (Corte de Cuentas).  It is a 
nominally-independent body charged with reviewing fiscal 
spending by the public sector, and has been at the center of 
recent political scandals.  The National Conciliation Party 
(PCN), a minority, right-wing party, has controlled the 
Comptroller,s Office for the last 20 years by selecting its 
president, who runs the business agenda with an iron fist. 
An agreement appears to exist between the ARENA and PCN 
parties to leave the Comptroller,s Office in PCN hands, in 
exchange for the Comptroller not auditing the Executive or 
ARENA.  PCN leader and National Assembly President Ciro Cruz 
Zepeda has used the Comptroller,s Office to maintain the 
political power of his declining party, by using the office 
as a potential Sword of Damocles over other parties.  Recent 
scandals have exposed the weaknesses of the Comptroller,s 
Office.  In one case, the Office failed to detect over USD 
$40 million in kickbacks to a senior government official.  In 
a separate case involving the former Tourism Minister, the 
Comptroller,s Office interpreted the law in such a way that 
the Minister was essentially absolved of wrongdoing. 
 
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The Constitutional Role of the Comptroller,s Office 
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2. (U)  As decreed in the Constitution, the Comptroller,s 
Office has responsibility for: 
 
- Vigilance over the collection, custody, authorization, and 
payment of public funds, as well as the spending of taxes, 
rates, fees, and other contributions, as established by law. 
- Approving of the spending of all public funds, in 
accordance with the budget, intervention in all matters that 
directly or indirectly involve the public treasury, and 
authenticating those acts and contracts related to the public 
debt. 
- Analyzing, inspecting, and auditing the financial accounts 
of public officials and employees that administer or manage 
public assets, and knowing about the transactions originated 
by such accounts. 
- Auditing the spending of autonomous institutions and 
corporations and other entities which receive funding from 
these institutions and corporations. 
- Examining the Executive Branch's treasury report to the 
Legislative Assembly, and reporting to the Assembly regarding 
the results. 
- Drafting the regulations needed for the fulfillment of 
functions. 
- Informing the President and Legislative Assembly of proven 
irregularities by any public official or employee in the 
management of funds. 
- Assuring that the debts of the State and Municipalities are 
paid. 
 
3. (SBU)  The Comptroller,s Office is divided into Auditing 
functions and Administrative Courts.  Three elected 
magistrates preside over the Comptroller,s Office: Hernan 
Contreras as President (PCN), Arnoldo Marin (Christian 
Democratic -PDC party) and Abdon Martinez (ARENA).  Each 
magistrate must receive a simple majority of Legislative 
Assembly votes to be elected, and each serves for a three 
year term.  The three judges were re-elected on June 3 to 
another full term.  While each magistrate has an equal vote 
to decide cases, the chief magistrate and President 
(Contreras) controls the agenda, including the persons and 
agencies to be audited.  Contreras has served six years in 
office and effectively controls the operations of the 
Comptroller,s Office.  In practice, the Comptroller,s 
Office has achieved levels of political power unforeseen by 
the drafters of the Salvadoran Constitution.  Detailed 
oversight of expenditures by agencies headed by political 
opponents, such as auditing the rate of expenditures of 
pencils, is reported to be common, while political allies 
regularly escape review.  Although the Comptroller,s Office 
should have limited political power, it has used its auditing 
functions to wield more power than the Attorney General's 
office.  The Legislative Assembly is authorized by law to 
conduct independent audits of the Comptroller,s Office, but 
has not done so since 1996.  One legislator from the 
Democratic Change (CD) party told Poloff that "it's difficult 
for one political institution like the Assembly to control 
another political institution like the Comptroller,s Office." 
 
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The Comptroller,s Office and the PCN 
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4. (C)  Founded in 1961 as a front for the military, the PCN 
has been rife with corruption for decades.  While the PCN 
played a key role in Salvadoran society in the 1960's and 
1970's and acts as an important legislative ally to ARENA 
against the FMLN opposition agenda, many critics believe that 
its real level of electoral support is difficult to quantify 
because of institutionalized electoral fraud.  The party's 
popularity began to decline after the 1984 presidential 
elections, and during the 2004 presidential elections it did 
not obtain the 3% of the vote needed to continue as a 
political party.  Nevertheless, a Supreme Court decision 
based on legal technicalities saved the party and authorized 
its continued existence.  The PCN has used 20 year control of 
the Comptroller's Office as a potential stick against 
political enemies and threats on its political space from 
other political parties.  It appears that there is a 
"gentlemen's agreement" between the PCN and ARENA giving 
control of the Comptroller,s Office to the PCN, while the 
Attorney General's (Fiscal) office remains in the hands of 
ARENA.  Further evidence that the PCN is using the 
Comptroller's Office to maintain political power is the fact 
that during their 20 years of control, there has not been a 
single prosecution for financial mismanagement. 
 
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Glaring Examples 
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5. (C) Carlos Perla, the president of the National Waterworks 
and Sewer Administration (ANDA) from 1994-2002 is under 
indictment for the embezzlement of approximately USD $40 
million.  Local Newspapers "La Prensa Grafica" and "El 
Diario" reported that the money was received as kickbacks 
from construction projects.  Perla's illicit enrichment 
should have been obvious to anyone who knew his luxurious 
lifestyle.  Later reviews of his bank account documents 
indicated deposits of nearly USD $40 million.  Rene Auerbach 
of the Comptroller,s Office, (protect) asserted to an Emboff 
that the Comptroller,s Office (specifically Contreras) 
covered up the fact that former President Flores was aware of 
the embezzlement.  Perla is in a French jail, and extradition 
proceedings are well underway.  Since the Comptroller,s 
Office is constitutionally obligated to audit government 
corporations like ANDA, and is allowed to examine the bank 
accounts of major officials, the fact that they did not 
detect the kickbacks is particularly disturbing. 
 
6. (U)  On June 10, leading daily "La Prensa Grafica" 
announced that then Minister of Tourism Luis Cardenal,s 
family business had won a bid to supply lumber for the 
construction of 330 publicly-funded houses, although the 
Contracts and Acquisitions law specifically prohibits bidding 
on publicly-funded contracts by ministerial-level officials. 
Minister Cardenal asserted that because the bid was submitted 
by his family,s company--rather than him personally--the law 
did not apply in the case.  However, the Minister formally 
resigned from office in June to avoid further controversy. 
La Prensa Grafica reported September 27 that the 
Comptroller,s Office has decided that the bidding process 
was legal, but that there has been a lack of monitoring by 
the contractor.  The Comptroller,s Office further found that 
Cardenal could participate as the legal representative of his 
company.  Members of all political parties took the stance 
that the Comptroller,s Office is not authorized to make 
interpretations of the law, and that the Minister should be 
banned from participating in the bidding.   At a September 28 
roundtable on democratic institutions hosted by the 
Salvadoran Foundation for Economic and Social Development 
(FUSADES -- El Salvador's most prestigious think tank), 
legislators, Supreme Court justices, academics, journalists, 
and representatives of the business community were in 
universal agreement that the current audit system is not 
functioning, and that the Comptroller,s Office is in need of 
significant reform.  The critical views of the Comptroller,s 
Office expressed at the FUSADES roundtable, mirror those of 
most political analysts and Embassy interlocutors. 
 
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Comment 
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7. (C)  Although there seems to be widespread agreement that 
the Comptroller,s Office is not fulfilling its duties, there 
appears to be little political will to audit the office or to 
enact legislation to change the existing system.  Potential 
skeletons, past and present, among all political parties, 
make it highly unlikely that the Comptroller,s Office will 
be reformed any time soon.  For its part, the PCN sees any 
moves toward reform as a threat to its political power. 
Although El Salvador has made substantial advances in its 
democratic institutions in the past 15 years, one of its 
Achilles heals is promoting and monitoring transparency. 
Although there is an urgent need for the country to pass and 
implement a strong ethics law, and create independent, 
impartial offices that monitor corruption allegations, large 
segments of the political class, especially National Assembly 
legislators, prefer to stay in their comfort zone and make no 
changes. 
Barclay