Policies that awarded pay increases, bonuses and “ad hoc” consultant payments at Cayman’s Public Service Pensions Board were unclear and, in some cases, “inherently compromised” – leading to the potential for abuse, according to a review done by government’s Internal Audit Unit.
The review conducted by the unit, obtained by the Caymanian Compass, covered a period generally between mid-2008 and the end of 2009, although some expenditures identified in the report occurred in earlier years.
Auditors looked into several areas including credit card transactions by the pension funds’ managing director, bonuses ranging from 10 to 20 per cent of salary, ‘incidental’ expenses of US$34,000 paid for management consulting services, and approved personnel benefits.
The report was released to the government in February 2011, but has just recently been made public.
The internal audit review identified a potential conflict of interest involving a previous policy that allowed subordinate members of the Public Service Pensions Board staff to approve various credit card transactions made by the funds’ managing director. The audit review found payments for the managing director’s credit card transactions from July 2008 to December 2009 – a total sample of US$27,312.13 – were approved by either the director of financial reporting or the deputy managing director of the fund.
“This arrangement inherently lacks independence as subordinate staff is required to scrutinise the transactions of the managing director,” auditors reported. “This review process … is inherently compromised and therefore increases the risk of misuse of the credit cards.”
In July 2010, the public service pensions management implemented a new policy that required two members of the board of trustees to review and approve the managing director’s credit card expenses.
Government auditors also found a number of bonuses had been paid to staff between 2004 and 2008. The positions of the staff members who received the bonuses were redacted in the report. In one instance, a staff member received a CI$24,600 bonus, while another bonus payment totalled CI$44,355.33, apparently for performance over a two-year period. Both of these bonuses were approved by Public Service Pensions Board members.
The pension fund’s managing director approved a salary increase of about $8,000 for one employee and four bonuses between CI$13,557.60 and CI$7,132.80 during the 2006/07 budget year.
Auditors concluded it was “difficult to understand the justification for the amounts paid”.
“It was indicated that all financial incentives given were based on the employees’ overall performance for a given period,” the internal audit review stated. “However, the draft policy does not indicate a clear correlation between a specific level of performance to the calculation of the incentives paid.
“It was gathered that the board decided to suspend the granting of these incentives in 2008 until a more objective criterion is established,” the audit read. In the manager’s response to the audit report, it was stated that objective criteria for bonuses would be established. However, at the time the report was released the implementation date had not been determined.
Other benefits were paid to certain members of the public pensions system staff, however, the positions of the staff members receiving these benefits and explanatory remarks contained in the audit report were redacted.
The benefit payments included a recurring monthly expense for health insurance of CI$1,071 – totalling CI$6,426 from July to December 2009. An additional CI$1,190.22 was paid for travel and accommodation during the same period and another CI$864 expense went for ‘telecommunications’. The telecommunications expense was apparently for “communication expenses at home”.
“Board approval [of the benefit expenses] or any other contractual arrangement was not provided to us,” auditors stated. “Benefits given to employees without requiring adequate approval exposes the agency to questionable benefit payments which may have otherwise been considered unauthorised.”
In a heavily redacted response, the Public Service Pension Board’s managers indicated they have documented approval for the benefits.
“The employment contract for [redacted] now states that communication expenses at home in [redacted] will be paid to facilitate work of the board,” the management response indicated.
A number of consultancy services invoices – totalling US$34,458 – were identified during the course of the audit. These were generally identified as “technical and administrative charges, travel and related out-of pocket expenses”.
According to government auditors, there was no documentation whatsoever provided to support these ‘incidental’ expenses. Officials told auditors no other documentation is usually provided for incidental expenses for consultancy services.
“Without additional information to support these significant amounts, unreasonable charges may go undetected and subsequently paid,” the report noted.
In August 2010, the funds’ management stated the board’s investment consultant is now required to document all incidental costs prior to any payments being made.
Between July 2008 and December 2009 the government audit also noted three payments had been made to a consultant who provided legal and regulatory compliance advice to the Public Service Pensions Board. The three payments totalled US$34,642.29.
“Upon inquiry, we were informed that there is no agreement in place as the services required from [redacted] are all on an ad hoc basis,” the auditors wrote. Pensions fund managers agreed with auditors’ recommendations that agreements with service providers should be properly prepared and signed.