The board that oversees the Cayman Island’s Airport Authority was warned last year that it had overstepped its powers creating a significant risk that its decisions could be “conflicted” or “corrupt”.
Auditor General Alastair Swarbrick told the board it had strayed beyond its intended role as an oversight body in a letter to the authority, released to the Compass under the Freedom of Information Law.
The auditor highlighted a series of decisions as cause for concern, including regulations requiring board approval for all applications for businesses to operate at the airports.
The auditor also warned that the potential conflicts of interests of board members, including details of their own contracts with the airport, were not properly recorded in the CIAA’s financial statements.
Board chairman Dick Arch denied that the board had acted beyond its legal remit in anyway. He said the board, appointed by government, was fulfilling its role in accordance with the Airports Authority Law.
He said declarations of interest were made at every meeting and documented in the minutes.
“Our board members, including myself, have never participated in any discussions or considerations of any applications in which they may have benefitted,” he added.
In the letter, an official document known as ‘report to those charged with governance’ sent to the CIAA in March 2012, the auditor recommends the board sticks to its legal mandate as an oversight body and stays away from operational matters.
He writes: “The operations of the board create a conflict of interest that results in a significant breakdown of the organisation’s management control framework.
“This has created a significant risk that decisions and transactions of the organization could be conflicted and/or corrupt.”
The letter was sent following the auditor’s decision to give a “qualified opinion” – meaning there are areas of concern – on the CIAA’s financial statements for the previous year.
Mr. Swarbrick acknowledges board members have declared their interests during board meetings and at the discussion level. But he says this does not go far enough and warns that a formal register of interests needs to be established detailing the annual business dealings of anyone who can influence decision making at the airport.
The letter does not name individual board members. Mr. Arch acknowledged his involvement, along with his wife, as owner of Air Agencies Ltd. But he said there was no one in the Cayman Islands who did not know of his connection to the business and insisted that there had never been any discussions relating to Air Agencies in the four years he had been on the board.
Frank Flowers, another board member, is also involved with Flowers Air Dispatch Services, an aviation, security and baggage handling firm that does business at the airport.
Mr. Arch said that no board member had ever taken part in discussions or meetings or voted on matters connected to their own business interests, in accordance with the regulations set down in the Airports Authority Law. However he said the board had “accepted” the auditor’s recommendation that a register should be established.
The auditor’s letter sets out a number of additional ways in which he believes the board has strayed beyond its role as an oversight body and become involved in operational activities.
These include board directors participating on project evaluation committees (procurement), sitting in on interviews below senior management level and compelling the CEO to seek board approval on recruitment decisions and all spending.
Laying out how the board should be operating, the auditor writes:
“Beyond approving the operational policies for the organisation, the hiring of the chief executive officer and setting out its expectations for performance, the development of a strategic direction and the approval of an annual operational plan, the board should only be receiving reports and making decisions that are the purview of its mandate
“The separation of these key responsibilities between the board and management ensures what is known as a good corporate governance framework.”
In response, the board wrote: “Management does not agree with this observation. However, the distinction between the responsibilities of the board and those of the CEO will be clearly defined in a Board Governance Policy that has been drafted and is being reviewed by the board.”
Mr. Arch added: “The CIAA is required to comply with all laws and applicable regulations as they apply. It should also be noted that the CIAA is the operational section of our aviation services. The CIAA is licensed by the Civil Aviation Authority to carry out certain functions and the CIAA is expected to ensure compliance.”
The contents of the auditor’s letter raises fresh questions over the firing of CEO Jeremy Jackson and CFO Shelly Ware within the last six months.
Both were sacked in the wake of an internal audit conducted by a CIAA board member.
It could also spark a fresh debate about how boards are appointed and who should be allowed to serve on them.
In an interview with the Compass last month, Karin Thompson, chairwoman of the Commission for Standards in Public Life, said conflicts of interest should be stamped out by a proper vetting procedure at the appointment stage.
“My personal view is that, even in an island of this size, I can see no reason why in appointing members to a board, if there is the merest hint of a potential conflict it would be best not to appoint that person,” she said.