Airport theft was flagged three years ago

The board of directors of the Cayman Islands Airports Authority was made aware of allegations of theft more than three years ago, according to its financial statements. 

The authority’s audited financial statements for 2009 flagged an estimated $91,000 loss as a result of theft. 

The airports authority is undergoing the second phase of a forensic audit, ordered by board chairman Richard Arch last October. 

Mr. Arch said it would be “premature” to comment on how the theft was dealt with in 2009 as the audit process was still ongoing. But he said the investigation had been initiated because of “ongoing concerns of the board”, which had been communicated to government officers “as far back as 2011”. 

A reference to the theft is included in the notes to the financial statements for the airports authority, dated June 2009. 

Under the heading, Loss of Revenue, the 2009 report notes: “In December 2008 and January 2009, the authority lost $19,559 due to theft.  

“It is estimated that approximately $91,000 may have been lost for the year. Subsequently, the financial controller endorses all daily lane reports and ensures that all withdrawals are lodged promptly.” 

The financial statements are prepared by the airports authority and vetted by Cayman Islands Auditor General Alastair Swarbrick. Mr. Swarbrick told the Caymanian Compass on Thursday it would have been down to the airports authority board or management, not the auditor, to investigate the alleged thefts and refer to the authorities if necessary. 

The auditor also gave a “qualified opinion” – which means there are areas of concern – on the 2011 financial statements, released to the Legislative Assembly last month, because disclosure of the business interests of key management and board members, and their dealings with the airports authority, were not complete. 

Both the 2010 and 2011 statements report some of the business dealings of two members of the board, including the chairman. The statement said: “The current chairman of the board has a principal interest in an entity that conducts business as a ground handling agency at Owen Roberts International Airport. 

“The entity was billed by CIAA a total of $64,811.75 for rental space and miscellaneous ID and parking fees for the period July 1, 2010 – June 30, 2011. At June 30, 2011, the entity’s outstanding balance with the CIAA was $34,402. (2010: $70,804). 

“A director of the board has a principal interest in an entity that conducts business at Owen Roberts International Airport as a security screening company. 

“The entity billed the CIAA $662,098 for services rendered between July 1, 2010 and June 30, 2011. The outstanding balance due to the entity at June 30, 2011, was $55,936.” This was not sufficient for the auditor to offer an unqualified approval. 

In his notes to the financial statements the auditor general comments that the disclosure of interests – reported as related party transactions – is not complete, in accordance with international accounting standards. Disclosure is required to assess whether the financial position and performance of the entity has been affected by the business relationships of management or board directors. 

The auditor writes: “I was unable to determine the entity’s compliance with this standard due to the absence of related party representations by senior managers and those charged with governance.” 

Asked Thursday for comment on the financial statements, Mr. Swarbrick explained: “The management and board of the CIAA are responsible for the preparation of the financial statements and the information therein contained. My role is to audit the information in the financial statements and to provide an opinion as to the fairness of the presentation in accordance with accounting standards.  

“Those standards require entities to disclose matters of significance to the readers of the financial statements in the notes that are included,” he said. “For example, for 2010-11, I brought two matters to the attention of readers; the lack of compliance with accounting standards requiring senior management and board members to disclose their outside interests and the valuation of the pension liability.  

“These issues resulted in the risk that related party transactions in the financial statements were not being accurately reported and the amount for the pension liability was potentially misstated. 

“With regard to the alleged frauds, based on the work of my office, I concluded that these matters were appropriately disclosed including the estimated amount of the frauds that were reported in the financial statements in 2008-09 and 2009-10. We were pleased that the management and the board provided these disclosures as they were important matters to be brought to the attention of the readers of the financial statements. 

“Management and the board were made fully aware of the frauds that we found and reported by them at the time. It was the authority’s responsibility to initially investigate and take appropriate action, including informing enforcement agencies.”  

Speaking on Radio Cayman last week, Mr. Arch made reference to the potential conflict of interest. He said his involvement with Air Agencies Ltd. was well known and he had never participated in any business of the board or the airports authority that could be considered as prejudiced. 

Asked this week about the theft allegations in the 2009 financial statements, the board released a statement: “It would be premature for the board to comment on this matter as there is an independent audit in progress following the completion of the forensic audit conducted by the CIAA Board.  

“The chairman initiated a forensic audit of the authority in October 2012 due to ongoing concerns of the board,” the statement continued. “These concerns were communicated to the appropriate Government officers as far back as 2011 and the audit was a precondition of Mr. Arch accepting the position of chairman.”