Auditor: We’re not looking at revenues

The Cayman Islands auditor general’s office has not been able to review government revenue collections for the past several years.

Auditor General Alastair Swarbrick’s office has spent the majority of its time reviewing government’s yearly expenses since the new auditor arrived from Scotland last year.

However, spending only accounts for half of the government’s ledger. The other side – revenues or earnings – has been largely untouched by the auditor general’s office for the last several government budgets.

The reason for this, according to Mr. Swarbrick, is that government financial statements have been so incomplete there’s no hope of compiling those records to create a consolidated financial statement for Cayman’s entire public sector. In fact, that hasn’t been done since the 2004/05 government budget year.

“The reality was in terms of consolidated financial statements, we’d issued so many disclaimer opinions we’d probably have to issue disclaimers on the consolidated financial statements as well,” he said. A disclaimer of opinion is audit-speak for ‘there’s not enough information here to conduct an audit’.

Having reliable, updated consolidated financial statements would allow the auditor general’s office to look at government earnings from what are known as “coercive revenues” – fees, duties and fines – that government uses to support its operations.

Mr. Swarbrick said each government department that collects revenue, as well as the government treasury, should be keeping track of this anyway. However, there has been no independent audit of those records, Mr. Swarbrick said.

“That’s a side we’ve hardly touched so far,” he said. “We haven’t got anywhere near them.”

At this stage, Mr. Swarbrick said its unlikely any useful consolidated financial statements will be produced between the years 2005 and 2009. However, he said government’s response in turning in financial statements for last year’s budget – the 2010/11 – was much better, and he hopes the data provided will allow the auditor’s office to look into the areas of revenue and executive transactions.

“We’re looking forward to auditing the executive transactions this year, included in those are the course of revenues of the government,” said Audit Manager Martin Ruben.

Executive transactions include things like transfer payments to organisations outside the government – auditors gave the example of the government’s nation-building fund as one of those – which are typically not included in the individual financial statements for government ministries and portfolios.

The Cayman Islands government typically collects more than $450 million in coercive revenues each year, but projections related to revenues have been badly missed in the last few budgets. In the 2008/09 year government expected a $27 million operating deficit and ended up with an $81 million deficit. In the 2010/11 year government expected a $32 million operating deficit and ended up with a $25 million operating surplus.

While the latter result may be quite an improvement, Mr. Swarbrick said it’s still crucially important the government understand what it is earning as well as what it is spending. Part of that can be achieved by constant monitoring of earnings, the auditor general said. However, Mr. Swarbrick said it was also important for independent auditors to review government’s numbers.

“If you’re operating in a booming economy, it’s easy,” he said. “But when you’re in the position you’re in now … a significant drop in revenues, it becomes of paramount importance to know how much money you have.

“Otherwise you end up in a position where you run up significant deficits; you don’t know how you’re going to fund operations.”