Gov’t punts on management law

A bill that will come before the Legislative Assembly,
possibly later this year, would exempt several Cayman Islands government
financial years from reporting and auditing requirements contained in local
law.

The move was proposed more than a year ago after it
was revealed that various public entities were so far behind on financial
reporting and auditing requirements – and had so little information on those
accounts – that it would be virtually impossible to audit the records.  

Former Cayman Islands Auditor General Dan Duguay
reported in 2008 that some $1.5 billion in government spending over several
years had not been audited because appropriate records were not presented to
his office. The auditor who succeeded him, Alastair Swarbrick, said late last
year there was no point in trying to update and audit accounts – particularly
from government budget years between 2004 and 2008.  

“The majority of the [financial] reports have such
significant deficiencies that they cannot be relied upon,” Mr. Swarbrick wrote
in a report updating the status of government accounts. “Their usefulness for
decision-making and holding government entities to account is practically
nonexistent.”  

However, Mr. Swarbrick admitted this “pragmatic”
solution means there can be no definitive answers from auditors about whether
any government spending from those years was improper.  

In its response to the auditor general’s report, the
Ministry of Finance indicated that requirements within the civil service that
chief officers report to the deputy governor has made it difficult to police the
financial reporting situation.  

Mr. Swarbrick’s report actually suggested suspending
certain sections of the Public Management and Finance Law. That is what the
amendment bill coming before the Legislative Assembly now seeks to do.  

“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.  

 The Public Management and Finance (Amendment) Bill,
2011, seeks to eliminate the requirement in the law that government comply with
generally accepted accounting standards regarding the use of accrual accounting
methods for the fiscal years 2004/5 through 2010/11. The 2010/11 year will end
as of 30 June and projects a $4.5 million budget surplus from government’s
operations.  

Prior to 2004, the Cayman Islands government operated
on a cash accounting basis, but the Public Management and Finance Law changed
that system to the more modern accrual system. The accrual system has come
under intense criticism from some members of the Cayman Islands Legislative
Assembly who believe it is unnecessarily complicated for the jurisdiction’s
needs.  

The amendment bill also seeks to roll back
requirements for compliance with generally accepted accounting standards in
determining whether government met with the principles of responsible financial
management for budget years from 2004/05 through 2010/11. Those principles
include requirements for how much debt government can have, the rate it has to
pay off that debt, and how much it must maintain in cash reserves.  

Legal requirements that annual consolidated government
financial statements and government output statements should be audited are
also removed in the bill for the 2004/05 through the 2007/08 budget years.  

Statutory authorities and government-owned companies’
requirements to have audited financial statements for the government budget
years between 2004/05 and 2007/08 have also been removed under the amendment
bill.  

The bill also seeks to eliminate quarterly and
half-year financial reporting requirements for government entities altogether.
In most cases, the auditor general’s office has determined those financial
position update reports were never done anyway.  

Although he did make recommendations to suspend
sections of the Public Management and Finance Law, Mr. Swarbrick did not
suggest scrapping it altogether. He said Cayman still needs to implement some
effective form of financial accountability for government agencies.