The Cayman Islands government spent US$1.8 million (CI$1.5 million) on a fraudulent plan to “roll out” a healthcare patient swipe-card system to private sector doctors and insurers, an audit of the public hospital system’s CarePay project has confirmed.
Not only was there no existing contract for the expenditure of those sums, the entire basis for the payment – made in two tranches between late 2011 and mid-2012 – was a “letter from the former Health Services Authority Board chairman [Canover Watson] to the Minister of Health.”
The audit review, completed by government’s Internal Audit Unit at the request of Deputy Governor Franz Manderson earlier this year, attributed the payments for the non-existent “national rollout” of the CarePay system to a “lack of an expected standard of care and professional skepticism in the payment of invoices totaling CI$1.5 million by the Health Services Authority.”
“The Ministry of Health funded the Health Services Authority for an equity injection on the basis of a request from the former board chairman [Watson],” the audit states. “However, the HSA finance officers advised that they had no knowledge of this equity funding.
“The HSA officials, at the instructions of the former board chairman, paid out the funds to Advanced Integrated Systems Cayman without an approved contract of service and despite the fact that the invoices were addressed to the Ministry of Health and not for the HSA.”
It was revealed during a criminal trial last year that Watson, along with friend and business partner Jeffrey Webb, had personal financial interests in AIS Cayman Ltd., the local arm of the Jamaican company that was paid millions of dollars as a result of the CarePay contract being awarded while Watson served as chairman of the HSA board. Watson was sentenced to seven years imprisonment on fraud and corruption-related charges in February.
The US$1.8 million payment was in addition to nearly US$1.4 million in “set up” costs for the original CarePay patient card system used by the public hospitals. The system’s usage was discontinued in December 2014, the audit noted, a few months after Watson was arrested on corruption and fraud-related allegations.
“This was not our finest hour,” Deputy Governor Manderson said, commenting generally on the audit Wednesday. “But we’ve taken steps to ensure something like this doesn’t happen again.”
As to whether the government would attempt to recover any of the money spent on the CarePay fiasco, Mr. Manderson said asset forfeiture proceedings involving Watson were ongoing before the court. Watson is accused of personally benefitting from the CarePay/AIS scheme, taking in nearly US$350,000, prosecutors alleged.
Whether the Health Services Authority would seek to recover any of the US$1.8 million spent on the “national rollout” was a matter for the authority and its board, Mr. Manderson said.
HSA Chief Executive Officer Lizzette Yearwood said Wednesday that the hospital system was in discussions with its attorneys on the issue.
The fraudulent “national rollout” was just one of a litany of errors the Internal Audit Unit found in the bidding and award of the CarePay project to AIS Cayman in December 2010. There were three particular areas auditors found where government had not complied with its own financial management legislation.
The first instance occurred with the lack of a business case being presented during the procurement of the CarePay system. This situation was exacerbated by the fact that Watson, as the HSA chairman, also sat on the technical evaluation committee for the project bids, a situation auditors said should never have been allowed to occur.
The second instance involved non-compliance with budget provisions that require any capital project to be included in government entity financial statements. The government noted that the CarePay procurement was not listed in capital expenditure items during the HSA’s 2010/11 and 2011/12 budgets.
Finally, the government did not follow its own public bidding process, in that concerns expressed over the initial CarePay project bids were seemingly ignored, or at least not given serious consideration by the relevant public sector entities. “This lack of consideration given for bid queries is not in compliance with the Central Tenders Committee’s open tender process,” the report stated.
There were generally a lack of financial controls around the large expenditure of sums associated with the CarePay project, auditors found, including the US$1.8 million spent for the non-existent “national rollout” of the system to the private sector.
“It is unclear why the HSA paid the [national rollout] funds to AIS, given their knowledge that the CarePay system was not demonstrated to be operating sufficiently … to be ready for the national rollout,” the report states.
The hospital system noted its finance officers understood that the Ministry of Health would reimburse the HSA for those payments. The instructions to pay the amount came from Watson, who was the board chairman at the time. Watson’s involvement directly in the bid process and evaluation “blurred lines” with regard to reporting in the project as well, auditors said.
There was generally a “deficient government framework” surrounding the entire bid and award process, the audit concluded.
“The lack of an effective governance arrangement for the procurement … contributed to the poor planning, the ambiguities and lack of role clarity, the lack of communication and inadequate information flows, the fraudulent payment of invoices, the delays in implementation and the inability of the implemented [CarePay] system to meet the expectations and needs of the HSA, the Cayman Islands National Insurance Company and the Ministry of Health,” the report stated.