Government accountability ‘in crisis’

Government entities are so far behind in submitting financial records for audit that the Legislative Assembly has lost effective control of the public purse, a special Auditor General’s report, released Thursday has said.

Variously describing the situation as ‘deplorable’, a ‘crisis’ and a ‘national problem’, Auditor General Dan Duguay said there has effectively been no serious scrutiny of government expenditure by the Legislative Assembly since July 2004.

‘Today there is at least $1.5 billion of operating expenditures that should have been accounted for that has not yet been reported to the Legislative Assembly. To date there has been virtually no accounting to the Legislative Assembly for these funds even though there is a legislative requirement to do so,’ the report stated.

‘The continuing crisis in financial accounting is threatening the very foundation of good governance in this country,’ he said.

As of April, no government Ministry or Portfolio had met the first deadline set for them for submitting an annual report to the Legislative Assembly – 15 December, 2005 – as mandated by the Public Management and Finance Law.

The long awaited report lays much of the blame for the situation at the feet of high-paid chief officers and chief financial officers. It said the situation will not improve until they give as much priority to preparing accountability documents as they do to preparing budget documents that get them money in the first place.

‘One of the main jobs of the CFO’s is to ensure that the people and systems are in place for financial information to be produced on a timely basis. This has not been done … I find it difficult to conclude otherwise than the CFO’s of the various Ministries and Portfolios are failing in fulfilling a major component of their job.’

Mr. Duguay wrote that legislators should be calling CFO’s before the Public Accounts Committee, one by one, to have them explain why they are not completing and submitting annual reports.

The situation among Cayman’s 25 statutory authorities and government companies is no better, the report notes. ‘Of the 25 entities, not one is in total compliance with the requirements of the PMFL. Many financial statements are two or more years late.’

Even when reports are submitted for audit on time, they are rarely sent to the Legislative Assembly as an annual report, as the law requires. As a result, information that should be publicly available remains secret, it said.

The Cayman Islands National Insurance Company is highlighted as a case in point. The national insurer has submitted records for audit on time for each of the four years it has been in existence, but it has never made those reports available to the public by way of an annual report submitted to the Legislative Assembly.

‘This is a situation that should not be allowed to continue,’ Mr. Duguay notes. He proposes that if the entities refuse to submit statements to the Legislative Assembly, his office should be allowed to do so.

Cayman Airways is identified as one of the worst performing entities when it comes to financial accountability. Despite requiring significant government equity injections over the past several years, it has not had an audited set of financial statements since the financial year ending 30 June, 2003.

While most statutory authorities and government companies are behind schedule, Mr. Duguay commended several that are submitting financial statements in a timely manner. The include: the Cayman Islands National Insurance Company; The Cayman Islands Maritime Authority; The Cayman Islands Stock Exchange; the Electricity Regulatory Authority; the Information and Communications Technology Authority; the Cayman Islands Monetary Authority; the National Roads Authority; the University College of the Cayman Islands; and the Water Authority of the Cayman Islands.

Mr. Duguay acknowledged that the changes introduced by the PMFL in 2004 had introduced a whole new way of doing business, requiring massive change for government entities, but compliance efforts had been less than satisfactory, he said.

While Hurricane Ivan impacted the preparation of financial reports, ‘it is simply time to put this excuse behind us and get on with the important job of preparing timely annual reports,’ he states.

Jefferson tardy

The report was posted on the Government’s website Thursday morning, but Mr. Duguay has previously discussed his report with members of the media (See Caymanian Compass, 30 June).

His comments to Cayman Net News on 17 July provoked an angry outburst from Financial Secretary Kenneth Jefferson, who complained that details of the report had been released early. Mr. Jefferson went on to deny that government had a financial accountability problem.

However, Mr. Duguay’s report suggests that Mr. Jefferson had been tardy, if not downright uncooperative, when asked to provide feedback on the report in early May.

The Financial Secretary made an initial commitment to give a response within two weeks, on 6 May, the report states, but six weeks later Mr. Jefferson had not replied.

On 23 June, Mr. Duguay said he again asked Mr. Jefferson for feedback on the report by the week’s end – a timeframe Mr. Jefferson agreed to but did not keep.

Officials in Mr. Jefferson’s office indicated they would make a response available on 9 July, but again the deadline was not met and more time was requested.

A response was finally received on 15 July – over two months after the initial deadline – but even then it contained only minor suggestions, the report said. Portfolio of Finance and Economics officials said they would need a further three weeks to provide a more detailed response, the report states. However, when Mr. Jefferson released his press release criticising Mr Duguay’s comments to the Net News, Mr. Duguay decided to treat this as Mr. Jefferson’s official response and prepared to release the report.