Poor record keeping and a lack of specific criteria for waiving government fees leaves the “revenue collection operations open to abuse,” according to the acting auditor general.
The audit notes the fee waiver system violates the Public Management Finance Law.
A report released Thursday, submitted to Cabinet by former Auditor General Alastair Swarbrick in his last days in the job last month, found that, overall, government was collecting the revenues it was supposed to.
However, the audit lists concerns with inefficiencies, complicated fee structures, and a lack of risk management and performance tracking. Moves this week in the Legislative Assembly could take fee waivers out of the hands of civil servants and put those decisions to the finance minister directly.
Acting Auditor General Garnet Harrison, releasing the report during a press conference Thursday, said, “We were surprised to find little in the way of policies, procedures and practices around the assessment of requests by the public for the waiving of duties.”
During the audit of government’s 2013-2014 revenue, auditors reviewed 56 waiver applications but only received documentation for 39, roughly 70 percent, of the applications.
“It was unclear in many cases why the waivers were granted,” Mr. Harrison said. He continued, “Government doesn’t track how much it grants in waivers, leaving it unable to provide proper financial reports required by its own accounting policies.”
The one policy on the books regarding fee waivers, according to the auditor general, is a $25,000 threshold. Above $25,000, the waiver proposal goes to Cabinet for approval; below that line, it’s up to the financial secretary.
Martin Ruben, lead auditor on the report, said the fee waiver process “becomes very subjective and that’s what we’re concerned about.”
An amendment to the Public Management and Finance Law approved this week prohibits the waiver of government revenues by members of the civil service, including the financial secretary, who previously maintained such power under the law.
“The decision to waive fees ultimately has to lie with the Ministry of Finance and the minister,” said George Town MLA Roy McTaggart, who helped redraft the legislation that was approved by lawmakers late Wednesday.
However, the legislation does not specifically address the process for awarding fee waivers for items like stamp duty, planning fees, work permits or any fee that would be collected by government in the normal course of business.
Finance Minister Marco Archer could not be reached for comment by press time.
Government revenue has gone up by more than a third over the past five years. Total revenue in the 2009-2010 fiscal year was more than $475 million, increasing to almost $650 million for 2013-2014. About 95 percent of government’s revenue comes from fees and duties.
A quarter of that revenue in the last fiscal year, about $165 million, came from the Customs Department collecting import duties and package tax. Another 20 percent, about $130 million, came from fees paid to the General Registry.
The Cayman Islands Monetary Authority was government’s third largest revenue source in the audit year, contributing $107 million, about 16 percent.
Confusing work permits
Mr. Harrison called Cayman’s work permit fee structure “overly complex.” He said the audit found some incidents with the Immigration Department collecting work permit fees at the wrong rate.
Each occupation has a different fee, and then the fee changes depending on the industry. The report explains: “For example, the fee for an accountant applying for a Grand Cayman work permit in the insurance industry is $13,650, while the fee for the same accountant would be $10,400 for a Grand Cayman work permit in the building installation sector.”
There are more than 5,000 different fees listed for work permits. Auditors note that simplifying the fee structure could lead to a more efficient system for Immigration Department administrators. “Decreasing the number of occupations and fees specified in the legislation could make the process simpler. A simpler process would allow for the swifter processing of work permit applications and thus improve service to the public,” the report states.
Auditors looked at 42 work permits and found 10 of those listing an occupation that did not have a category in the legislation. In those cases, the permit fee was listed as a similar occupation, but with no guarantee that the Immigration Department collected the correct fee.
“We found that government is missing many opportunities to save money by doing the job of collecting revenues more efficiently,” said Mr. Harrison. He pointed to “government departments operating revenue collection in silos” when they could work together on one central revenue collection system.
Many of those collection points do not operate in government’s accounting software, so the information has to be put into the accounting system by hand.
Mr. Harrison pointed to the main floor of the Government Administration Building as a prime example of the inefficiencies in the approach many departments take to collecting revenues.
“There are 12 to 15 wickets operating with each one staffed by different departments and operating at different times. Observing their operations, many of the individuals are idle for long periods of time,” he said.
“The requirement for customers to visit more than one wicket to pay government fees when they visit the building results in more time being spent by the customer and a diminished customer experience,” he added.
The audit notes that government does not manage risks to its revenue. The auditors write in the report: “In today’s environment of continual change and uncertainty, risk is unavoidable and is present in most governmental circumstances. A systematic approach to risk management is needed to deal with the uncertainty that surrounds future events and outcomes.”
Mr. Harrison said the lack of risk management systems and performance measurements has come up in other recent audits, including reports on government procurement and managing big capital projects.
“These frameworks are fundamental to good public sector management and we have again identified these important deficiencies in this area of government’s operations,” he said.
Cayman Compass reporter Brent Fuller contributed to this report