Risks of fraud, loan write-offs identified
The Cayman Turtle Farm doesn’t know the actual value of the assets it holds including property, plant and equipment.
Lack of certain asset management tools has exposed the government-owned company to higher risk of theft and fraud.
The company also has millions of dollars worth of accounts payable and loan advances that it has not paid to the Cayman Islands government, that are now years overdue and which should really be counted as cash investments from taxpayers.
These revelations are all contained in a report from the Cayman Islands Auditor General’s Office to the management of the Turtle Farm released to the public on Wednesday, known as a “management letter” or “letter to those charged with governance”.
The report was done for the 2011/12 government budget year.
As part of the report, the Turtle Farm management was given an opportunity to respond to each area of risk identified by the auditor’s office, but in some cases indicated it could not because the government had not responded to its queries on the matters.
Auditors pointed out that the Turtle Farm does not maintain an accurate register of its assets and has done no assessment as to the fair market value for its property, plant or equipment.
“The lack of a detailed fixed asset register increases exposure of the company’s assets to theft and fraud,” the management letter to the Turtle Farm read. “Additionally, it increases the risk of error in the financial statements as it may result in fully depreciated assets being further depreciated.”
Auditors also noted that, because of this, assets may be considered “impaired”, essentially meaning they’re worth less than stated.
“The actual value of the company’s assets may be significantly below the carrying value recognised in the balance sheet of the financial statements,” the report read.
Auditors recommended that assets at the farm be identified and that officials determine if anything is recoverable from impaired assets.
Turtle Farm officials noted they intended to judge asset values while a new asset register is completed. Meanwhile, a government valuation of Turtle Farm land and buildings was planned, but had not yet occurred.
The Turtle Farm has been operating for the better part of a decade without a proper effluent discharge permit from Water Authority-Cayman.
Effluent is the sum total of everything produced at the plant that flows into the surrounding sea, including wastewater.
Prior to 1 October, 2008, and after 1 October, 2010, no discharge permit had been acquired. Another requirement that the Turtle Farm reduce effluent discharge by 50 per cent by 1 July, 2009, was never met.
Turtle Farm managers said they continue to work with the water authority on the discharge situation.
Loans and debts
The Turtle Farm, which is a company overseen by an government-appointed board, owes about $5 million in various payables – some dating as far back as 2006. “The company appears not to be in a position or possibly does not intend to pay these invoices as they have been outstanding for a significant amount of time,” the management letter stated. “[The transactions] appear to be an equity injection from the government.”
Auditors said the amounts due should be taken off the books if they are to be classified as an equity investment, rather than a debt. What that means, according to auditors, is essentially that taxpayers will never see the money back. Similarly, the farm received interest free loan advances from government in 2007 and 2008. Those advances were due to be repaid five years after the date the facility became fully operational.
Again, the loan advance amounts were determined to be “unlikely” for repayment.
The Turtle Farm said it had no response from government about the issue to date.