Audit reveals depths of Cohen financing mess

A detailed summary of three recent Cayman Islands government projects and investments has revealed rampant non-compliance with the country’s financial regulations, ‘extra’ spending for government services and, in one case, a complete failure to adhere to any legal bidding requirements at all.  

Cayman Islands Auditor General Alastair Swarbrick’s review encompasses government’s bidding for arrangement of a $155 million loan, bidding for the first phase of the public closed-circuit television system, and a contract awarded for the production of the 2009 Jazz Fest.  

Mr. Swarbrick’s report deals with each contract individually. The auditor general’s office was expected to discuss the report in more detail at a press conference later today.  

Cohen & Company  

Starting in October 2010, the government went through two separate bidding processes for the arrangement of long-term financing needed to pay for recurring expenses as well as certain government construction projects.  

A long and convoluted process led eventually to the rejection of a recommendation for the financing contract made by the government’s Central Tenders Committee and a decision – made by Premier McKeeva Bush who is also the minister of finance – to go with a New York-based financing firm, Cohen & Company. That decision, according to the auditor general, was not in compliance with the financial regulations of the country’s Public Management and Finance Law. Premier Bush has admitted as much on previous occasions.  

Mr. Bush was contacted for a response on the report Tuesday. A spokesman said the Premier was compiling a detailed response and would respond as soon as possible.  

Auditors noted Mr. Bush said at the time that his decision to go with the Cohen firm would save Cayman $24 million over the life of the 15-year loan. However, the audit revealed those savings were essentially based on a “cap” on a variable interest rate for the loan. The “cap” varied from 7 per cent to 4.5 per cent based on how much the Cayman Islands government was willing to pay up front.  

Moreover, the report stated government had no guarantees on the borrowing terms in the long-term financing deal that was signed with Cohen.  

“The signed contract only provided the terms for how Cohen & Company would arrange loans but with no specific timelines, interest rates or other borrowing terms,” Mr. Swarbrick’s report found.  

Government later learned that Cohen could not provide a 4.5 per cent interest rate cap on the long-term loan and also required the up front payment to secure that rate to jump from $4.83 million to $21 million. In addition, the company offered only a seven-year bond to the government, as opposed to the 15-year deal offered previously.  

The government dropped Cohen as its long-term financier, but the New York company did arrange two short-term loans to meet the government’s needs during its last budget year.  



According to the auditor general’s report, the arrangement of those short-term financing fees cost $854,775 through Cohen & Company.  

A previous proposal for short-term financing negotiated through two locally operating banks cost $404,779 – which means the government paid $449,996 more for Cohen’s financing arrangement. Also, financing arrangement costs for the long-term loan – had the Cayman Islands government actually chosen to go with Cohen – would have cost approximately $854,153 more when compared with the long-term deal offered by Royal Bank of Canada and FirstCaribbean.  

In addition to what auditors termed ‘extra’ expenditures, there were a number of issues identified by the report where government’s decision-making with regard to the financing arrangements were called into question.  


Those areas included:  

Advice from ministry officials regarding Cohen & Company’s proposals was not presented to Cabinet members when they first reviewed the arrangement made by the Premier for long-term financing. Among that advice was the following statement from a top ministry official: “I find it quite difficult to believe that Cohen & Company has the ability to deliver what it says”.  

A top-ranking official of the United Democratic Party, treasurer Peter Young, “pointed the Premier in the direction of Cohen & Company based on his knowledge of the industry”. Mr. Young was providing a service to government but was not under contract at the time.  

“As he is not a public servant, or under contract, Mr. Young is not subject to the same contractual obligations as a public servant or contractor,” Mr. Swarbrick said. “We have concerns when this occurs.”  

The departmental tendering committee organised to negotiate and obtain the loan did not have detailed knowledge of the financial markets.  

Auditors were concerned the international community, particularly major lending companies, would notice Cayman “stumbling” on three occasions to obtain a loan for the government’s 2010/11 budget year.  

Jazz Fest   

In October 2009, the Cayman Islands Department of Tourism awarded a $1.25 million contract to Black Entertainment Television’s Event Productions to coordinate the production of the Cayman Jazz Fest – which was held in December 2009.  

The department did not go out to tender for this contract.  

“The requirement for a contractor to produce Jazz Fest 2009 should have been subjected to not only a public tendering process, but oversight by the Central Tenders Committee,” Mr. Swarbrick said. “This was not done.”  

The contract was reviewed by lawyers and a risk analyst who concluded that all appeared to be in order.  

However, auditors found that BET’s production company started work on the Jazz Fest event in June 2009. A contract wasn’t signed until October of that year. 

“This practice is not in accordance with good contracting principles,” the auditors noted. 

As a result of the audit, it was learned government’s net spending on the 2009 Jazz Fest was $808,263 after revenues from the event were collected. According to tourism officials, $1.7 million of value from the event was provided to the Cayman Islands government. This assertion was not audited.  



Of the three contract bidding processes reviewed, the CCTV agreement had the fewest problems according to auditors.  

However, there were some irregularities noted in this process as well.  

The initial contract award for the public CCTV system to The Security Centre Ltd. was for $1.38 million. However, change orders – mainly for additional equipment – pushed that contract up to $1.95 million.  

The tendering process was also delayed for six weeks following the initial award “pending a review by Cabinet”.  

It was noted that Cabinet’s intervention in the process “goes against the principles of good procurement practice”.  

Also, auditors said a “weak” business case made by the government for the project did not identify recurring maintenance and operation costs for the system.  

“This information was not made available to legislators when the programme was approved as part of the 2010/11 budget,” Mr. Swarbrick noted.  

In general, the process used for the CCTV project bidding was found to be “in accordance with procedures”.  


  1. It came as a surprise to me. Don’t these things usually take a bit longer to make it into the press? It just goes to prove we have a feckless government, with probably an equally feckless opposition. Depressing.

  2. Elected officials are employees of the people.
    Employed people who come up short at the cash register or petty cash have to make up the difference or they end up getting fired.
    It appears all Caymanians are not treated equal.

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