Government finances: Updating budgeting process will take time

The Public Accounts Committee on 28 Jan. queried how government plans to improve its budgeting process.

Government needs to introduce new performance measures and move to an outcome-based budgeting system to improve transparency and better align objectives and related budget items, the Public Accounts Committee heard on Thursday.

The committee questioned Kenneth Jefferson, financial secretary and chief officer in the Ministry of Finance, and Matthew Tibbetts, accountant general in the ministry, about the findings of a December 2020 report by the auditor general’s office. The report investigated whether government has an effective and transparent budgeting process.

The Office of the Auditor General had previously published two reports touching on the subject.

The first, ‘Restoring financial accountability: A time for change?’, released in 2013, concluded that the objectives of the Public Management and Finance Law had not been achieved. The second, ‘Major capital projects follow up’ from 2017, highlighted that the approvals processes for budgets and major capital projects were not aligned. In addition, it noted more transparency was needed for capital allocations and budgets to better consider the multi-year nature of capital projects.

Both reports made a total of nine recommendations about the budgeting framework and process.

The December 2020 report on ‘Improving Financial Accountability and Transparency: Budgeting’, however, found that only limited progress had been made and none of the recommendations had been implemented by the end of October 2020.

The auditor general’s office said, “Overall, the budget process is not effective or transparent and there is scope for significantly more change to further simplify it to improve transparency and accountability.”

Cayman’s budgeting process is based on government first setting broad and specific outcomes in its Strategic Policy Statement. But the remainder of the budgeting framework is output-based with no clear link between the output measures and the outcomes or the established budget.

Moreover, the budget documents, running at almost 3,000 pages, are not transparent because they are too long and not user-friendly, the report noted, concluding that providing more information does not necessarily improve transparency.

At Thursday’s hearing, the financial secretary agreed that the budget documents are “cumbersome and lengthy”. The volume could be reduced but that would require legislative changes, because the law prescribes the content of the budget documentation.

The bigger point that the audit office makes in its report is that there is a weak connection between what the government wants to achieve and the budget, he said.

While the Plan and Estimates documents, which outline how funds are spent, note the broad outcome that the items are contributing to, Jefferson said these are “just words” and the link to the objective is not really there.

“So, it definitely is the case that we need to specify new performance measures for the government.”

Jefferson said the initial report in 2013 prompted a review committee, which made 40 recommendations, about half of which required legislative changes. Of the 40 recommendations, only four haven’t been implemented and these are covered by the auditor general’s recommendations.

“So, some attempt has been made to implement suggestions, but I think, yes, we do have a long way to go,” he said.

Government’s latest Strategic Policy Statement includes the modernisation of the system for the 2022-2023 budget as one of the objectives. However, the financial secretary said this was unlikely.

“I think we regret putting that because I really don’t think that that is going to happen.”

The budget year 2024-2025 is more realistic, Jefferson said.

Implementing the audit office report’s recommendation that government move to an outcome-based budget process “will take some time, as it took many years to get to where we are”.

Tibbetts added that rather than focussing on improving the shortcomings in the current output-based system, government wants to move to an outcome reporting “to allow the average member of the public to see how the funds are actually benefiting them”.

Since 2016, government has engaged various consultants to help with that move.

Asked how government wants to improve the budgeting for multi-year capital projects, Tibbetts said enhancements had been made to outline business cases but it was still an issue getting the relevant information from cases into the budget document.

While government wants to consolidate some of the budget documents, the reporting on capital projects would need to be expanded by detailing the name of the project, the total cost and completion rate in the Plan and Estimates documents.

In addition, Tibbetts said, there are plans to refine the Strategic Policy Statement process because currently budgeting is done twice – first using rough numbers followed by a prioritisation exercise for the statement and then again in a detailed budget phase.

“So, there are some efficiencies that we can gain,” he said.

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