Financial reports improve, despite ‘adverse’ audit

An “adverse” audit of the Cayman Islands government’s entire public sector financial statements for 2014 and 2015 actually represents an improvement from years past, Financial Secretary Ken Jefferson said last week.

Mr. Jefferson was comparing those results to the government’s 2012/13 budget year, when public agencies failed to present enough information in financial statements for an audit to even be completed.

The Cayman Compass reported last week that despite significant efforts to improve government’s annual financial reporting, an “adverse” opinion – revealing significant deficiencies in several areas of government’s finances – was issued for the 2014/15 budget year by Auditor General Sue Winspear’s office.

The audit report has not been made public in the Legislative Assembly and that is not expected to occur until after the May 2017 general election.

Mr. Jefferson said last week that the overall public sector report should be taken in context of all the individual reporting done by Cayman’s 16 government ministries and portfolios and 27 statutory authorities and government companies.

Each year, every one of those separate entities is required to submit financial statements for audit reviews, as well as an annual report describing the work of their agencies over the past year.

The timeliness and quality of these annual statements varies among the agencies, but generally Ms. Winspear’s office has noted an improvement across-the-board.

For instance, Mr. Jefferson points out that government’s ministries and portfolios received “unqualified” opinions on their audits – the highest rating – in just eight out of 16 financial reports (50 percent) submitted in June 2013. For June 2016, 92 percent of those agencies received the best possible audit opinion.

Among the statutory authorities and government companies, the number of “unqualified” audit opinions rose from 63 percent in 2013 to 79 percent in June 2016.

Those audits for the 2015/16 government budget year have not been evaluated in an entire public sector financial report, and Ms. Winspear told the Legislative Assembly’s Public Accounts Committee last week that she could make no promises regarding the overall audit for the 2015/16 budget year.

Mr. Jefferson noted that there are some significant obstacles in obtaining an “unqualified” audit for all of Cayman’s public sector finances within the next couple of years.

“Post-retirement healthcare cost, in particular, is a very significant reason in explaining why the auditor general’s office has issued an adverse opinion … on the consolidated financial statements,” Mr. Jefferson said. “Discussions with the civil service are expected to be concluded and a position reached with respect to civil servants cost sharing [with government] … on healthcare costs during 2017.”

Whatever agreement is reached will “impact” the financial statements for the next government budget cycle – between Jan. 1, 2018 and Dec. 31, 2019.

Mr. Jefferson said the audit opinion issued during the 2018/19 fiscal year was likely to be a “qualified” opinion – one step up from adverse – if the arrangements for the healthcare cost sharing can be made.

In 2014, government’s financial advisers estimated a $1.18 billion liability for retirees’ healthcare costs [at present dollar values] over the next 20 years.

Finance Minister Marco Archer has said costs related to healthcare coverage could overwhelm the government budget if nothing is done to bring them under control.

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