The Cayman Islands government intends to change its financial management law to avoid the formal acknowledgement of a $1.18 billion projected liability in its public healthcare system that would otherwise appear in the government’s annual “net worth” figure.
Finance Minister Marco Archer said Wednesday that the figure for public healthcare liabilities – what the government expects to have to pay at present value to support current and past employees’ healthcare coverage over 20 to 25 years – is reported in “notes” to the financial statements.
However, if that figure was contained “on the face” of the financial statements, it could place the government in a negative net worth position, meaning the public sector would run afoul of the principles of responsible financial management – potentially putting the U.K. back in direct control of local government finances.
Mr. Archer said the lack of formal acknowledgement of the healthcare liability under internationally accepted accounting rules is one of the reasons government’s financial statements for the 2013/14 budget year were given an “adverse” opinion by auditors.
However, he emphasized again that the figure is contained in notes to government financial statements for all who wish to see.
Financial Secretary Kenneth Jefferson has often said that many other jurisdictions, including the U.S., do not acknowledge projected liabilities for healthcare spending in their annual government budgets.
In an effort to prevent its financial statements from being disclaimed or receiving an adverse opinion in the future, Mr. Archer said government also intends to split up reports for the three pension plans it manages on behalf of public sector employees.
Currently, the financial estimates for the civil servants’ pension plan, the legislators’ pension plan and the judiciary’s pension plan are reported jointly. Auditors have long argued that this is an inaccurate way to report those figures for retirement savings because each plan is in a different financial position.
The judicial pension plan, for instance, is fully funded, while the legislators’ plan is barely funded. The civil servants’ retirement fund has a significant unfunded liability as well.
The healthcare and pension issues were not the only reasons Cayman’s 2013/14 financial statements for its entire public sector received an “adverse” opinion from auditors. Other reasons included lack of updated information on government property values and lack of credible information about government earnings/receivables.
The financial statements for government’s 2013/14 budget year, which were completed and signed off by auditors in September 2015, were tabled (made public) in the Legislative Assembly on Wednesday.
Mr. Archer said he spoke about the details of the financial statements before the House in November, but did not table the financial statements at that time.
Following the November meeting, the Legislative Assembly did not meet again until Wednesday.
In the 2013/14 audit of government’s financial statements, former Auditor General Alastair Swarbrick said 18 of 26 statutory authorities and government companies received the best possible results, an unqualified audit opinion. Government ministries, he said, had struggled with proper financial reporting in the past, but he noted that some of those entities were given “qualified” opinions, meaning some financial reporting deficiencies were noted, but that the records were in better shape than they had been.
“It’s not what you want, ultimately,” Mr. Swarbrick said at the time. “What your expectation should be is that everybody presents financial statements and they should get unqualified opinions. That should be the norm.”
However, he said the situation had improved since 2010, when most government agencies and entities were given disclaimers of opinion or adverse opinions on their financial statements.