Gov’t ‘in breach’ of finance law

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.”

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4 COMMENTS

  1. No surprises here. Chief officers are not held accountable for finance law compliance. With rampant corruption why would they want to have audited financial statements. Someone needs to audit their personal finances. Then you might see where the lost government spending went to.

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  2. Whilst the Auditor General may be technically correct in his recommendations it represents a very dangerous precedent.

    In my experience working for a UK government department involved in revenue collection, organisations that fail to supply accounts as required by law normally do so for just one reason – and I think the readers can work that out for themselves.

    It is probably right to stop throwing good money after bad to sort things out but while doing so there need to be measures put in place to ensure this never happens again. Going down the no fault route that seems to be being suggested could simply encourage those involved to do exactly the same in the future. If the investigations result in no legal or disciplinary action then the public are, right or wrong, likely to conclude that there may have been another cover up.

    What is bewildering about this is how these public sector entities have continued to function over the years.

    Are we to conclude that the annual budgets for the departments and organisations involved were based, not on balanced assessments of the actual need for funding, but just on how much money they had disposed of in the previous years? If so, it could also be concluded that this saga of non-compliance, rather than the current economic downturn, might be a major factor in the financial crisis currently afflicting the public sector in the Cayman Islands.

    The harsh reality is that without these figures all the normal benchmarks that a public sector body needs to determine if they are working efficiently and providing good value for money (as has frequently been claimed) are missing. If they were present would the annual amounts allocated have been the same?

    Even worse is the fact that these organisations cannot manage their own internal affairs serious raises questions about how they handle their overall public responsibilities.

    In the UK even a very small public organisation, like a parish council or one of our infamous Quangos, that failed to produce accounts would soon find itself either under outside management or shut down. Cayman should count itself very lucky that the UK government seems so pre-occupied with domestic problems that it is currently happy to let you sort things out yourselves but dont count on it happening indefinitely.

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  3. John

    We both know that what you are saying here is totally and technically correct but…

    The Auditor General in Cayman does not have the same power as he has in England; he can only do what he has done, give his professional opinion and make that opinion public.

    You have to remember that Cayman does not and has never functioned under proper parliamentary democracy as we know it in England.

    The opposition party in Westminster, whichever it may be at the time, functions as the government watchdog and whichever ministers department does not meet legal financial requirements puts its ministers political career in jeopardy and that the minister will not have.

    Perform or youre out…end of.

    The prosecution of ministers accused in the expense scandal is a good case in point.

    Its taken some time and a lot of agro from the press to keep the process going but in the end…

    The accused ministers found guilty of fuddling expenses have been prosecuted and have had to pay back the embezzled amounts.

    The FCO will get around to dealing with Cayman eventually…

    We both know this…

    Im not sure the almighty ministers in Caymans government know it but they will eventually find out.

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  4. I am sad to say that, after a lifetime of working for various governments – including a spell in one as a very senior finance officer – my experience of each successive wave of so-called improvements, refinements etc being introduced (often by consultants) was that the new systems only complicated and obfuscated the position(and usually frustrated and upset the staff involved).
    Old fashioned accounting and auditing practice, properly carried out, is all you need. Plus the Legislature making sure that they vote money for sensible, necessary projects, require proepr reports,and examine them in a timely and objective manner. Remember Mrs Thatchers dictum about good housekeeping and efficient government.

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