Audit review reveals major accounting mishaps
The Cayman Islands government did not recognize an estimated $1.39 billion in pension and healthcare payments it will owe retirees over the next 20-25 years in its 2013/14 consolidated financial statements.
The estimated payments, broken down as $1.18 billion in post-retirement healthcare costs and $213 million in pension payments for civil servants on the defined benefit retirement plan, more than doubled the revenues earned by central government during the year.
The amounts are not due immediately. The estimated pension payments, for instance, are spread out over a 20-year rolling period.
However, Acting Auditor General Garnet Harrison urged government financial planners to begin including those amounts in annual budget figures and to take steps to reduce the amounts owed in the coming years. An amount for the pension liabilities is currently included in the government budget, but it is based on estimates dating back nearly five years.
“People’s healthcare when they retire, pension obligations down the road, you have to be able to fund it,” Mr. Harrison said during a press conference Wednesday.
A number of other serious problems were revealed with government accounts for the 2013/14 year, the first time government has been able to put together enough information for the auditor general’s office to conduct a review of Cayman’s entire public sector finances since government abandoned its former cash accounting system in 2004. Prior to the 2013/14 year, all audits of the entire public sector were disclaimed, meaning there was not enough information to audit.
The results for 2013/14 were scarcely better. The financial statements from the report were given an “adverse” opinion.
“That means that the information in those financial statements is not reliable,” Mr. Harrison said. “In my opinion, this is unacceptable.”
Other issues identified in the auditor general’s review included:
$612 million in government’s stated earned revenues for 2013/14 could not be confirmed, largely because government depended on the entities from which those taxes were being collected to reveal how much tax had been collected. For instance, in the area of tourism accommodation taxes collected from local hotels, “the government does not examine, or validate what they are being provided is complete and accurate.”
About $487 million in assets held in the government’s public retirement funds was left off the 2013/14 financial statements, apparently due to government’s view that the funds were being held “in trust” even though the government maintains control over them.
The auditor general’s office found that $186 million of government assets were not properly valued. For instance, the government apparently overvalued Clifton Hunter High School in North Side district by “at least” $20 million, auditors said. Also, the government had no idea how much its current roads network, or the George Town landfill property might be worth because it has never valued them.
Accounting systems that would assist government in consolidating its annual financial statements were not uniform, and auditors found a general “lack of leadership” around financial matters in the public sector.
Mr. Harrison was asked whether anyone in government would be held responsible for the results of the audit, which has yet to be made public by the Legislative Assembly.
“We have to obviously leave that with the deputy governor,” Mr. Harrison said. “It’s been a long problem. [Government] really needs to get the right people in the right place at the right time … for certain functions.”
The estimated healthcare liability, by far the largest single continuing liability for government, has never been included in annual financial statements.
It has previously not been common practice in Western governments to include such figures. The U.S. and the U.K. do not currently do so.
However, Audit Office Principal Martin Ruben said Wednesday that previous accounting standards are changing and that adding in healthcare liabilities is now recommended in international standards of accounting.
If other countries do not include healthcare liabilities, “that shouldn’t prevent the government here … from complying with their law and as well to … adopt best practices,” Mr. Ruben said.
It is generally considered a difficult political decision for any Cayman Islands government to address healthcare liabilities because the typical solution proposed is to require civil servants to co-pay a portion of their premiums.
Any decisions on that have been put off until after the May 2017 general election, according to statements made by government officials earlier this year.
Neither retired civil servants nor active government workers are required to make co-payments; their monthly premiums are paid for entirely by government.
Both civil service plans under the Cayman Islands National Insurance Company have a $5 million maximum “lifetime limit” for healthcare coverage. There are no limits on prescription drug purchases or inpatient or outpatient care. Overseas accommodations and airfare for covered government workers or retirees who must fly off island to obtain treatment are covered 100 percent.