Audited financial accounts for the Ministry of Health and the Cayman Islands Airports Authority have been outstanding since 2019 and it may be some time before they are brought up to date, the Public Accounts Committee has heard.
Describing the backlogs as “unacceptable”, Deputy Governor Franz Manderson told the Public Accounts Committee on Thursday that steps are being taken to address the situation so the audit process can be completed.
However, he acknowledged it may take up to two years to reconcile the Ministry of Health’s financial statements to the point that it is up to date.
The audits, which are conducted by the Office of the Auditor General, require information and evidence of transactions outside of what is reported in the financial statements, to determine value for money and compliance with procurement rules.
In the absence of this, the Office of the Auditor General has been unable to complete its audits, creating the backlog.
Auditor General Sue Winspear, speaking at the Public Accounts Committee hearing, said her office is assisting where it can to address the backlog at both the ministry and the airports authority.
She said she was “optimistic” the necessary information would be delivered to complete the outstanding audits; however, she quipped, “I have been optimistic before.”
The committee, after two failed attempts to call a meeting, began its hearing Thursday on the auditor general’s 2022 annual general report on the state of financial reporting within the Cayman Islands government.
The report suggested better compliance with procurement and public authorities laws, more prompt tabling of annual reports in Parliament, and an increased focus on the Entire Public Sector account.
COVID contributed largely
Focusing on the health ministry’s financial audit backlog, Manderson sought to explain how the situation had evolved.
He said, in 2019, a “void” had been created in the ministry’s finance team when the chief financial officer was promoted to acting chief officer, which led to the delay in the 2018 audited statement.
Then, the COVID-19 pandemic hit.
“That ministry was leading the government’s response to COVID,” Manderson said. “So, the finance team was not focusing on audits, they were focusing on procuring test kits and procuring all of the supplies that we needed for COVID, and that went on for over a year- and-a-half of us being in the COVID fight,” he said.
He said the situation was now being addressed through additional resources and hiring dedicated staff to clear the backlog within the ministry.
Manderson added that the backlog does not mean that the CIAA and health ministry were non-compliant with the law, as they had been providing up-to-date financial statements.
The auditor general confirmed that the financial statements had been received and that her office is assisting in trying to get the records up to date to complete the audits.
Manderson said while that exercise will take some time, both entities are committed to dealing with the backlog.
Public Accounts Committee member Barbara Conolly questioned why the issue had not been addressed earlier, asking why someone had not been sourced internally or externally to handle the statements.
Manderson responded that in 2020, the audits were not the focus.
“I would say we were focused on trying to save people’s lives,” he said. “We were not focused on a backlog of an audit.”
But he added, “I don’t want to give excuses. The situation that we’re in is not an acceptable situation.”
A matter of resources
Winspear said, in the case of the Cayman Islands Airports Authority, the backlog was the result of vacancies within its finance team.
“There was also a really big problem around the cash within the entity that took up a lot of that resource as well, trying to reconcile an agreement with the cash,” she said.
She added, “Of course, once you’re in backlog, it becomes difficult, because people are keeping the job going, keeping the day-to-day finances going, as well as trying to look and deal with the backlog,” she said.
In the afternoon session, the issue of the audited accounts backlog was also raised with Accountant General Matthew Tibbetts, who said it had a “knock-on effect” on the Entire Public Sector consolidated accounts, which has received repeated adverse opinions from the auditor general in recent years.
Financial Secretary Kenneth Jefferson pointed out that the absence of audits does not help transparency efforts.
“The Ministry of Health, being a number of years behind, the Airports Authority being a number of years behind, does pose a problem for what is referred to as the Entire Public Sector accounts in terms of the accuracy of those numbers; it raises questions. So it is important that those audits be completed,” Jefferson said.
Disclaiming accounts
Tibbetts suggested disclaiming the accounts and focusing instead on the current year’s financial audits to ensure they are updated, as was done in 2018 where most ministry accounts were disclaimed for a three-year period to focus on current accounts.
“The value of the information coming out of those reports have a very limited value at this point,” he told the committee. “Obviously, I would want us to do some kind of checks to ensure that there wasn’t any blatant fraud or any blatant kind of misappropriation of assets.
“But I think it would be valuable to just go ahead and disclaim a number of years and get us caught up with those [entities],” Tibbetts said, adding, without action, the backlogs will continue.
Winspear said disclaimed audit opinions are a “very significant” step and would be impactful for the health ministry and the airports authority, but she would need to be mindful of other stakeholders who have been compliant.
She said there was a backlog team in place, but pointed out that it had taken 18 months to complete and sign off on the Ministry of Health’s 2018 audit.
Public Accounts Committee member Joey Hew expressed support for disclaimed audit opinions, saying that the amount of resources and money put into trying to catch up could be put into the current reports.
Jefferson said the Ministry of Finance would assist where it could in the process; however, he added that the accuracy of balance sheets would remain an issue for those years that are disclaimed.
Chairman Roy McTaggart, the opposition leader, said the matter will be looked at and addressed through the committee’s recommendations.
The issue of excessive changes to financial statements made after financial reports were submitted to the auditor general was also raised by McTaggart.
The auditor general, in her report, had stated that, in 2022, more than 280 after-the-fact adjustments, valued at $115 million, were made across all public bodies.
This meant that when the records were initially provided, they were either incomplete or inaccurate at the time of submission.
“The quality of financial information submitted to my Office by the public bodies needs improvement,” Winspear noted in her report.
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As long as accountability is not a requirement of the Civil Service these issues will continue. Mr Tibbetts states that the CIAA and the Health Authority’s current missing years of financial statements be “disclaimed” as was “done for most Ministry accounts for a 3 year period in 2018”.Is this the way to handle Governments financial responsibilities now involving a billion dollar budget!.
Even when we do get approved financial statements, in 2022 the Auditor General reports that she had to require “more than 280 after-the-fact adjustments valued at 115 million dollars made accross ALL public bodies. It seems abundantly clear that Government needs to employ more experienced and fully qualified Chartered Accountants in order to get their books in order.