Auditor General: Loan programme ‘seriously flawed’

The Office of the Auditor General expressed concerns about the design and legality of the $2.05 million “Save the Mortgage” programme, particularly the formation and direction of the governing committee by Cayman Islands Premier McKeeva Bush, who is the minister responsible for Finance, Tourism and Development.

That resulted in the Attorney General’s Chambers issuing an opinion indicating that the programme, aimed at helping Caymanians pay off 
distressed mortgages, does indeed pass muster under the constitution and other laws.

Paid for by the Dart Group through the ForCayman Investment Alliance, the programme provides interest-free loans of up to $20,000, with repayment terms of up to 50 years, to Caymanians who are facing foreclosure or who are at least three months delinquent on mortgage payments. The last of the funds was distributed 13 July.

According to records provided to the Caymanian Compass in response to a Freedom of Information request, the Auditor General’s Office raised questions about the programme in mid-February. In an e-mail sent 20 February to government officials, Audit Principal Martin Ruben said, “I noted that the Mortgage Assistance programme will be used as a case study for the upcoming governance audit and that we would like to have it as an opportunity to discuss good practices.”

Mr. Ruben’s criticisms of the programme include “unclear policy direction from the political level”, “unclear objectives”, “seriously flawed” programme controls, and a lack of a formal reporting process to determine if the programme was successful.

“At the present time, based on our discussion last Friday, a full audit of the Mortgage Assistance Programme would result in a very poor assessment of its controls and design. More importantly, there is currently an extreme risk that there would be abuse and mismanagement in its operations should it proceed in its current form,” Mr. Ruben said.

Mr. Ruben’s February e-mail outlines a preliminary set of criteria that the Auditor General’s Office would use if it came back to conduct an audit once the programme was under way.

In response to the Compass’ records request submitted in late June, the ministry provided a “Save the Mortgage Programme” Governance and Control Framework, the stated purpose of which is to address the criteria stated by Mr. Ruben in February.

New committee chairman

One of Mr. Ruben’s primary concerns in his February e-mail was that Mr. Bush was directing the programme, and that Mr. Bush had “already met with the four member committee he appointed” in order to give them verbal directions on what his expectations are.

Mr. Ruben said, “It is inappropriate in any acceptable governance framework for a politician to design and direct a government programme. This management framework gives the appearance that the programme may be open to abuse and mismanagement.”

Prior to Mr. Ruben’s 20 February e-mail, the committee had met once, on 6 February, chaired by Sonia McLaughlin, the ministry’s chief officer for Public Finance. The other committee members were businessman Renard Moxam, then-Collector of Customs Carlon Powery (who retired 31 May), Cora Grant-James of Royal Bank of Canada, and attorney A. Steve McField.

On 28 February, Cabinet named Mr. Moxam the new chairman of the committee, although Ms McLaughlin remained as a member.

Written notice of Mr. Moxam’s appointment as chairman was sent out 9 March, while written notice of the other members’ appointment was not sent out until 16 April. (During the committee’s 26 March meeting, Mr. Moxam indicated he would not sign approval forms to distribute mortgage loans until all committee members had received appointment letters.)

Also on 16 April, former Cayman Islands Cadet Corps Commandant Phillip Hyre joined the committee.

Each of the appointment letters is signed only by Mr. Bush.

More concerns from Auditor General

On 7 May, Mr. Ruben sent another e-mail to the ministry raising “some very significant concerns we have that the governance framework as outlined in the constitution, the [Public Management and Finance Law] and the [Public Service Management Law] has not been respected and that the real or perceived risk of mismanagement and abuse relating to the expenditure of public funds is still at a critical level from an audit perspective”.

Mr. Ruben said, in the opinion of the Auditor General’s Office, that the laws require the chief officer (in this case Ms McLaughlin) to direct the programme, rather than the premier. He said in their opinion the laws “clearly outline the requirement for ministers and politicians to not have any roles or responsibilities in the administrative activities of government”.

He added, “In a further discussion I had with Ms Sonia this afternoon, evidence was provided to me that the ministry was directed by the premier, endorsed by Cabinet, with regard to the programme delivery design (to which the ministry had no input) and evidence that a committee comprised mainly of non-public servants was appointed by the premier to determine the detailed criteria for approving the loan applications and determining the loan amounts to be made.

We believe there are key sections of the PSML, particularly section 22, which provide support for how a chief officer is to address these concerns when they arise.”

Mr. Ruben advised the ministry to obtain a legal opinion from the attorney general before distributing the programme funds.

Attorney General’s OK

In a legal opinion dated 31 May, the Attorney General’s Chambers gave its blessing to the programme: “Having reviewed the [Auditor General’s Office’s] comments and the materials and instructions presented to us by the ministry, we were unable to substantiate the [Office’s] concerns regarding any lack or potential lack of compliance with the governance/legal framework outlined in the constitution, PMFL and PSML that could lead to any real or perceived opportunities for abuse, mismanagement and conflict of interest with regard to the [Save the Mortgage Programme].”

According to the opinion, “The constitution does not support the notion that ministers have no role or responsibility in the administrative function of the government”.

Additionally, the opinion states that the law does not prohibit the minister from issuing directions to the chief officer, “provided that the decision or action regarding the inputs is ultimately made, taken or agreed by the chief officer”.

The opinion continues: “Notwithstanding the above, the assertion made by the representative of the [Auditor General’s Office] that evidence was provided by the chief officer, public finance that the minister (endorsed by Cabinet) directed the ministry with regard to the programme delivery design of the [programme] (to which the ministry had no input) was denied by the chief officer and was not corroborated by materials reviewed by us.”

According to the legal opinion, Mr. Bush did indeed appoint the committee and verbally direct them as to his expectations, but that in fact was appropriate and within the bounds of the constitution.

The opinion states, “We found that the minister properly exercised his constitutional responsibility with respect to the appointment of the committee and properly gave directions to the committee.

Whilst the minister is not required to consult with the chief officer prior to the appointment of the committee, it might be in the furtherance of good governance for him to do so.”

According to the opinion, “Having examined the governance and control framework of the [programme], we believe that, if it is strictly adhered to by the committee, the [programme] would not be opened to the abuse, mismanagement or conflict of interest that the [Auditor General’s Office] is concerned about.”

In response to Mr. Ruben’s allusion to the section of the PSML that sets out procedures for the chief officer to follow in case of political pressure being exerted by a minister or official members, the Attorney General’s Chambers’ legal opinion states, “We are not privy to any information regarding any allegation or complaint or potential complaint of political pressure [. …] Therefore, we do not consider it relevant to comment on whether there was compliance with section 22 of the PSML.”