While progress has been made in the completion and submission of overdue government financial statements, Auditor General Alastair Swarbrick said Thursday that nearly 100 of the annual reports those statements are contained in had not been tabled – made public – in the Legislative Assembly.
Mr. Swarbrick said, since his office’s last update on the state of government’s financial accountability in April, the backlog of financial statements and annual reports yet to be tabled has increased from 73 to 94.
“In effect, by not tabling the reports in the Legislative Assembly, the information about the financial performance of these organisations remains unavailable for public scrutiny,” the auditor general’s office stated in its report. “The government’s record of preparing and tabling of annual reports is of significant concern to me and is clearly not in compliance with the requirements of the PMFL [Public Management and Finance Law] or compatible with the principles of openness and transparency.”
Asked by reporters at a Thursday press conference whether that meant government was breaking the law, Mr. Swarbrick replied: “It’s not in compliance with PMFL so, technically, it is in breach of the law. We encourage, but we can’t take any direct action ourselves on that. The main area for me to do anything is to report that fact.”
His first report as auditor general indicated that Mr. Swarbrick felt certain government entities – especially statutory authorities and government companies – had made significant progress in submitting financial statements to his office. However, he said the information contained in the reports, especially those turned in by government ministries, was “useless” for determining financial accountability. For instance, the auditor’s office had to issue what’s known as a ‘disclaimer of opinion’ for 12 of the 15 government ministry financial statements submitted between the budget years of 2005/06 and 2007/08. In accountant-speak, a disclaimer means auditors were not given enough information to conduct an audit.
Not all statutory authorities completed their audits in a satisfactory manner, either. The Health Services Authority was given a disclaimer of opinion in all years since 2005/06. Auditors said there were incomplete records related to patient revenues, accounts receivable and bad debt expense.
“This information has not been made public by the government as it has not tabled the financial reports I am making reference to,” Mr. Swarbrick said. “However, I have decided to discuss these issues due to their importance to the overall accountability of the government.”
In cases where there were still a number of outstanding financial statements due for the years prior to 2008/09, Mr. Swarbrick said his advice would be to simply turn in whatever information the government department had and move on.
“I considered these decisions to be a pragmatic solution,” he said. “What is the point in spending huge amounts of resources trying to sort that out?”
However, the audit report points out that government has since spent close to $2 million trying to do just that for the older financial reports; a move which Mr. Swarbrick said he did not consider to be good value for money.
Responding to the auditor’s review, the Ministry of Finance disagreed. “The government recognises the importance and value of having current and credible financial information and is not prepared to ignore the reporting of financial performance over the past six financial years,” the ministry statement read. “These reports still have tremendous value.”
“On the basis of the opinions I have rendered so far that are currently being finalised up to 2007/08…the majority of the reports have such significant deficiencies that they cannot be relied upon,” Auditor General Swarbrick responded. “Their usefulness for decision making and holding government entities to account is practically non-existent.”
Mr. Swarbrick admits the ‘pragmatic’ solution essentially means that there can be no definitive answers from auditors about whether any government spending from those years was improper.
“It’s difficult for us to reach a view about whether it’s poor accounting practices or if there’s something else going on there,” he said. In its response to the auditor general’s report, the Ministry of Finance indicated that requirements within the civil service that chief officers to report to the deputy governor has made it difficult to police the financial reporting situation.
“Chief officers have remained largely unresponsive resulting in general non-compliance with the statutory financial reporting responsibilities,” the unsigned statement indicated. “The law does not give the Ministry of Finance the authority to sanction nor impose penalties on chief officers for their non-compliance with the law.”
This is an issue the auditor general suggested the government address in terms of a leadership role. He suggested that government appoint a director general of finance or comptroller’s position to oversee financial accountability.
“[We’re] talking about good management practices,” he said. “If they’re not doing that…there should be consequences.”
Mr. Swarbrick’s report also suggested suspending certain sections of the Public Management and Finance Law for the time being, eliminating requirements for quarterly financial reports and changing the way current output statements are reported by government entities.
“They’re not making annual financial reports now,” Mr. Swarbrick said, adding that information contained in budget outputs also made it impossible for an observer to determine what a government department had achieved. Those output reports should be revamped, he said.
Despite recommending the changes, the auditor’s office did not believe that government should altogether remove the Public Management and Finance Law.
“Government now needs to make formal strategic decisions about how they plan to restore financial accountability and consider whether the PMFL, as it stands, meets the needs of the Cayman Islands government.”