Following concerns raised by the auditor general, both Finance Minister Chris Saunders and Opposition Leader Roy McTaggart agree that though Cayman’s budget process must have the flexibility to adjust spending as the need arises, a managed approach is best.
Auditor General Sue Winspear expressed apprehension over the seemingly regular use of the budget provision set aside for emergency or exceptional circumstances spending.
Both Saunders and McTaggart – the former finance minister – contend the provision, which falls under Section 11.5 of the Public Management and Finance Act, is a necessary facility for government spending.
“The ability for Government to move funds between appropriations allows for the efficient use of Government funds and for Government to carry out its agenda outlined in the Strategic Policy Statement,” McTaggart said in a statement to the Cayman Compass on the issue.
Saunders shared that view, as he said this mechanism the law permits “means that Cabinet can make changes to a budget that has been already approved by Parliament without getting prior approval of the Parliament to make any such change”.
However, having that facility available does not mean it is a licence to make changes that deviate from what the Parliament Finance Committee, which is made up of all 19 elected representatives, approved through the two-year budget cycle.
“It is clear that the ‘letter and spirit’ of the Act is that such a mechanism should be reserved for genuinely exceptional circumstances which could not have been foreseen leading-up to the passage of a budget and, the circumstance is so significant that it must be remedied quickly – and the timing of the usual supplementary budget process, will not provide the required quick remedy,” Saunders explained in his statement to the Compass.
Concerns over misuse
Winspear, in her recent report on funding for Cayman’s foreign offices and participation in the Dubai Expo, took aim at the Progressives use of Section 11.5 of the Public Finance and Management Act, saying the transactions breached the law and did not meet the criteria for emergency or exceptional circumstances.
“This has been something I have been concerned about for some time. My office has looked at this several times and most recently through a performance audit report we published in 2020 and as an issue that arose specifically regarding the funding of overseas offices and the Dubai Expo costs,” Winspear told the Compass.
McTaggart, while pointing out that the auditor general’s opinion on how government should utilise Section 11.5 in her report on the foreign offices was “apparently based on legal advice she has received”, added that “every Section 11.5 request presented to Cabinet would have received legal scrutiny over the two decades it has been used”.
There is little doubt that in the past the mechanism in Section 11(5) of the Act has been overused and, its heavy use probably arose simply from the administrative convenience afforded by the mechanism – it avoided the administrative effort necessary to convene Finance Committee which, consists of all Members of the Legislative Assembly, now Parliament, the assembling of Civil Servants to answer budgetary questions and the inevitable passage of time before approval for budgetary changes is obtained. – Finance Minister Chris Saunders
“If there was a concern about interpreting this section of the law, I believe the concern would have been resolved by now. During my years in Cabinet, I never heard a concern from Government’s legal department that the section was not being utilised correctly according to the law,” he argued.
From Saunders’s standpoint, this section has been applied liberally.
“There is little doubt that in the past the mechanism in Section 11(5) of the Act has been overused and its heavy use probably arose simply from the administrative convenience afforded by the mechanism – it avoided the administrative effort necessary to convene Finance Committee which consists of all Members of the Legislative Assembly, now Parliament, the assembling of Civil Servants to answer budgetary questions and the inevitable passage of time before approval for budgetary changes is obtained,” he said.
Since taking over government in April 2021, PACT has made 101 Section 11.5 transactions compared to 32 in the first three months of the financial year under the Progressives-led National Unity administration.
However, Saunders said it is “worth highlighting that during the 2021 financial year, in which there was a change in Government, there were also changes in government priorities which resulted in the transfer of funds from one area to another”.
The PACT administration, he said, was “very prudent” with the management of government finances.
“Under the new administration, there was a net movement of only $5.1m in just over eight months, whereas the previous government approved over $32m in just over three months. In short, the previous government used 75% of the available spend for exceptional circumstances in three and a half months and the PACT Government a mere 12% in eight and a half months,” he said.
McTaggart, responding to this assertion, countered, “the Minister’s response misses the point. The point is not one of quantum or amount, that is irrelevant, but of principle. What is the ‘exceptional circumstance’ in each instance? That is the question to be answered.”
There was nothing unusual about these transactions, and we were very transparent with them. That said, with the calling of an early election we were not able to hold a meeting of Parliament before the date of the election and some Section 11.5’s had to be reported by the new Government.- Opposition Leader Roy McTaggart
Some of the transactions under the Progressives included over $5 million towards financial relief programmes, various scholarships amounting to over $7 million and payments for constituency allowances, the Parliament budget and MPs’ salaries.
As for PACT, transactions included movement of money for land purchase, scholarships, and financial assistance programmes.
Saunders said one of the reasons why the Government’s 11 (5) expenditure of less than $30,000 this year compared to the $30 million for the same period in 2021 is that the PACT Government recognizes that the Cayman Islands is at risk for hurricanes.
”Considering that the hurricane season starts on the 1st of June each year and lasts for six months, the PACT Government believes it would be more prudent and responsible to ensure that the government has the ability to respond quickly during times of emergencies. Using 75% of 11 (5) expenditures in the first three months of the year when government revenue collections are at the highest and three months before the hurricane season starts is not something that this PACT Government intends to replicate. The responsible thing to do is to call a meeting of the Finance Committee of Parliament and seek the relevant approvals,” he said.
On very few occasions, according to Winspear’s 2020 performance report, were the circumstances actually exceptional when money was moved around under this mechanism.
For his part, McTaggart said, “I am satisfied that we acted appropriately under the law, and per long-established practice, in our use of section 11.5 of the PMFA.”
He pointed out that “there was nothing unusual about these [Section 11.5] transactions, and we were very transparent with them. That said, with the calling of an early election we were not able to hold a meeting of Parliament before the date of the election and some Section 11.5’s had to be reported by the new Government”.
As for the concerns over the application of the provision, McTaggart said if, as a result of the auditor general’s report, it is determined that the law needs to be clarified, “then the Government should amend the Act”.
“However, any such amendment should not be taken to imply that the use of Section 11.5’s by every Government, including the present and previous Governments, based on longstanding precedent, constituted a breach of the Act. Rather it would be to remove any ambiguity or uncertainty,” he added.
Government’s legal department, he said, registered no issues with the section being utilised incorrectly according to the law.
“Indeed, the Attorney General is a member of Cabinet and I do not recall any concerns being raised by him or the Governor in this respect. Nor, when regular reports have been made on the use of Section 11.5, have any concerns been raised in Parliament by Members, including many now in Government, that Section 11.5 had been used inappropriately,” McTaggart said.
Checks and balances in place
The effect of Section 11.5 is that any change in the appropriation to a particular programme or a project would require, at a minimum, a Cabinet decision, McTaggart said.
Even moving funds from one appropriation to another, he explained, would require Cabinet approval. The same applies when needing to use funds approved for capital expenditure for operational purposes.
When the law was passed, he said, “I understand that Government has typically utilised Section 11.5 for what was considered necessary, sizeable, and urgent transactions that could not wait for a meeting of the House,” adding these are typically transactions not anticipated when the Parliament passed the budget, or perhaps could have been anticipated but “where there was sufficient uncertainty or risk that meant it was not prudent to include them during the usual budget process”.
This still requires Cabinet approval.
“I would add that, given my experience, the interpretation of the section by the (Office of the Auditor General) if deemed correct, would undoubtedly fetter the ability of the Government to operate efficiently. In a two-year budget cycle, no budget can be accurate to the final dollar and Government must retain the flexibility to ‘move money’ and to react to changing circumstances. The reporting of the use of that flexibility to Parliament ensures the openness and transparency of the process,” he said.
Saunders agreed there are safeguards in place, but from the PACT government’s position, he said the use of the mechanism will be reined in.
“It is certainly expected that the number of Section 11(5) transactions will decrease significantly compared to the previous government as evidenced by our conduct thus far. There is a big difference between $30 thousand and $30 million,” he said.
He assured the public that, “during this current budget period, the PACT Government will only use the Section 11(5) mechanism in accordance with the “letter and spirit” of the Act. Usage will be with respect to “exceptional circumstances” that need to be remedied quickly and cannot wait on the timeframe of the more normal Parliamentary schedule”.
Precedence previously set
McTaggart said, following the precedents set by governments before the two Progressives administrations certainly utilised Section 11.5 in the manner as noted previously, as has the current PACT government.
“But we went one step further than previous Governments and began reporting Section 11.5 appropriations to the Parliament as required by the Act. So there was nothing unusual about these transactions, and we were very transparent with them. That said, with the calling of an early election we were not able to hold a meeting of Parliament before the date of the election and some Section 11.5’s had to be reported by the new Government,” he added.
The findings of the auditor general’s report is being reviewed and the leak of the report on the foreign offices and the Dubai Expo is currently under investigation.
The Opposition has said that it will refrain from broad comments on the leaked report while the inquiry is ongoing.
However, McTaggart added, “we also said that we look forward to the speedy completion of that inquiry and the publication of the results. I have also written to the Deputy Governor to ask that the inquiry and publication of its conclusions not be unduly delayed, recognising that the inquiry has to be fair, thorough, and accurate”.
He defended the Progressives administration, saying “we carried out our public duty by following the law and abiding by longstanding legal precedents. Despite the incorrect reporting by some in the media, nowhere in the report by the OAG was any member of the elected Government mentioned as being involved in what was a civil service hiring process”.
He said once the inquiry is over the Opposition will have more to say.
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