Healthcare, property values, revenues at issue
Problems with compiling and reporting the Cayman Islands government’s consolidated financial statements since 2004 has led to a situation where auditors were unable to evaluate several major areas of public sector operation.
For instance, revenues taken in by government have not been able to undergo audit scrutiny, according to Auditor General Alastair Swarbrick.
“We can see what they’ve presented [in annual budgets] … whether that’s complete or true and fair is another issue,” Mr. Swarbrick said last week during a news conference.
It appears, according to the auditor’s office, that government will again not be able to present credible consolidated financials for the entire public sector during the 2010/11 budget year. Mr. Swarbrick said last week that he was “leaning toward” presenting a “disclaimer of opinion” on those statements – meaning the information they contain cannot be relied upon.
If the consolidated statements for the entire public sector are not completed in an acceptable manner, a number of high-dollar government spending and earnings areas go without review. Some of these areas include executive transactions, government’s coercive revenues and executive assets.
“[Without the entire public sector statements] you’re not getting a clear picture of the whole position of government,” Mr. Swarbrick said.
One area that government does not yet have a clear picture of is what its property, buildings and other assets are worth, according to Mr. Swarbrick.
This was one area of concern mentioned in the auditor general’s report released last week on the state of Cayman’s public financial reporting.
“I couldn’t give you a view … whether [government assets are] undervalued or overvalued because they haven’t done a valuation since 2001 of their fixed assets,” the auditor general said.
Mr. Swarbrick said such an effort has been under way within government for about the past year now and that his office expects to see something soon.
“A valuation impacts on your balance sheet and also on your depreciation,” he said. “If there’s been a significant increase in valuation, the balance sheet could improve. These are important questions when you’re looking at the finances of government.”
Former Auditor General Dan Duguay also noted the problem when he reported on it back in 2007.
Mr. Duguay claimed the last valuation of government properties was done in 2000, and stated his concern that government assets might be significantly under insured.
At the time, Mr. Duguay noted that after the 2000 valuation on government assets, there had been one scheduled for October 2004; however Hurricane Ivan came in September 2004.
When the government obtained new insurance in April 2006, it did so at a value of CI$400 million.
“These values were determined based on input from the insurance broker and attempted to include adjustments for estimated increases in property values,” Mr. Duguay wrote in the report.
Mr. Swarbrick also raised concerns in his report about the accuracy of government’s “doubtful accounts”.
Doubtful accounts, according to auditors, are receivables for which government says it is owed money, but which it believes may or may not be paid.
“There’s a general issue around the accuracy of these accounts,” Mr. Swarbrick said, adding that a later report from his office would address the issue in more detail.
Asked whether lack of documentation for money owed under certain accounts could lead to the government losing out on money owed, auditors responded that there was a potential for that to happen in some cases.
Another potentially massive financial issue for government that isn’t being recorded on yearly financial statements is the projected healthcare liability for civil servants and pensioners.
“It’s not immediately realisable, but for the future it is an issue,” Mr. Swarbrick said. “Cayman is not alone in having issues around this.”
Mr. Swarbrick said he is aware of views from the government that recording future healthcare liabilities on the government’s balance sheet isn’t done in large countries throughout the world including in the United States, the United Kingdom and Canada. However, he said that doesn’t mean the Cayman Islands shouldn’t do it.
“Even if it’s not included in the financials, they need to have the information for effective planning and use of their resources going forward,” he said. “You can’t operate in a vacuum.”
In 2010, the Caymanian Compass reported that a 2009 bond offering memorandum made an estimate of US$798 million (CI$654 million) in unfunded liabilities for healthcare coverage due to Cayman Islands civil servants. The figure was based on an actuarial estimate done in 2004.
The projections are essentially accountants’ best guesses at what the government will owe for the total benefit package at civil servants’ expected retirement dates – which can be up to 40 years in the future.
A senior civil servant who asked not to be named said that government “felt obliged” to make the estimate because there was an expectation that it would be done as part of the 2009 bond offering.
If the CI$654 million liability for healthcare services – which was calculated in 2004 – was added to the 2012/13 budget, the government’s overall net worth would plunge into negative territory. The government’s stated net worth in the current budget is $637.7 million.