Auditors: Finance Law change opens door to corruption

Garnet Harrison
Garnet Harrison

The Cayman Islands Government recently approved a subtle change in the territory’s finance law that will leave the door open for “abuse and corruption at the very highest levels,” representatives of the Auditor General’s Office said last week.

The amendment to the Public Management and Finance Law involved giving the Cabinet, and in some cases the finance minister acting alone, the ability to waive government revenue collection in certain circumstances: For instance, waiving customs duty on construction materials for a needed public project. Previously, the power to waive or reduce those fees lay with the financial secretary.

This change was recommended by a select government committee which spent a year reviewing finance law amendments and was approved in October by the Legislative Assembly.

Acting Auditor General Garnet Harrison said Thursday that he did not approve.

“This amendment contradicts the effective role Cabinet plays in the governance framework … reduces transparency and accountability for these types of transactions and effectively politicizes an administrative decision-making process,” Mr. Harrison told the legislature’s Public Accounts Committee last week.

Performance audit manager Martin Ruben put it another way: “We believe … the way that revenue waivers are managed today, in their entirety, that they are open for abuse and corruption at the very highest level. Unless government decides to put in place robust procedures … we believe that this will just be open for abuse going forward.”

Mr. Ruben gave the accounts committee an example of what occurred with the National Roads Authority agreement, which eventually led to the development of the Kimpton hotel on Seven Mile Beach in Grand Cayman. In the middle of that deal being negotiated, government changed hands three times from the United Democratic Party, to the People’s National Alliance, to the Progressives-led coalition.

Reviews by the Auditor General’s Office in 2015 found one government did not know what had been done by another and negotiations related to the deal had to be completely redone during the Progressives administration.

Public Accounts Committee Chairman Ezzard Miller said he was in full agreement with the auditor general and was concerned that some previous duty concession or waiver agreements with government – prior to the public finance law being changed in 2015 – had been done outside local law.

“[Now] Cabinet has carte blanche to waive any fees that it wants,” Mr. Miller said. “I don’t think any of us support that.”

Financial Secretary Ken Jefferson said government’s annual budget documents do not contain any information regarding government’s equivalent expenditures when tax revenues are waived.

Mr. Jefferson said under the Stamp Duty Law, the finance minister can waive stamp duty to an unlimited amount, but in practice, current Finance Minister Marco Archer does not do that. In cases involving a waiver of more than $20,000, they are taken to Cabinet.

The finance minister also has the ability to waive planning fees up to $5,000 and import duties to a maximum of $20,000. In both cases, higher amounts must go to Cabinet for approval.

The finance ministry is in charge of customs, which levies import duties, and would deal with most stamp duty amounts charged, but in cases where other waivers had been agreed, Mr. Jefferson said the ministry would not necessarily know about it if it was not told. “Our knowledge of [revenue] waivers throughout the government is fairly restricted to what we do … ourselves and what we got informed of via Cabinet,” Mr. Jefferson said.

Deputy Governor Franz Manderson said as far as he was aware, Cabinet had been waiving fees in conjunction with the law. No allegation of wrongdoing in connection with the waiving of government revenues has been made against Mr. Archer, although auditors have said that previous ministers’ actions in connection with fee waivers have been questionable.