Auditor general criticises public-sector financial management

The latest report on government finances from the Office of the Auditor General highlighted “fundamental weaknesses in financial oversight that must be addressed urgently”.

In a 3 Oct. press release accompanying the report, Auditor General Patrick Smith warned that unreliable financial reporting “undermines effective governance and decision-making”.

“Public bodies collectively made 336 adjustments valued at $150 million to their financial statements after submission for audit, which raises serious questions about the reliability of financial information used for decision-making throughout the year,” said Smith.

The report follows controversy in September’s sitting of Parliament’s Finance Committee, when Kenneth Bryan, deputy leader of the opposition, challenged Finance Minister Rolston Anglin about inconsistent government finance projections. In August, Wayne Panton, who serves as parliamentary secretary across a number of portfolios, had quoted a $60 million projected deficit for 2025, but by late September, the government said the year would actually see a $10.3 million surplus.

To be clear, ‘Financial Reporting of the Cayman Islands Government’ for 31 Dec. 2024, analyses the year before the current administration took office.

Yet speaking on Compass TV’s Forefront on 11 Sept., Premier André Ebanks acknowledged that weaknesses in public-sector financial management persist. “We need to modernise how budgets are produced,” he said.

“Government chief financial officers produce it on large spreadsheets. We need to improve that process and go to outcome-based budgeting and have numbers the country can rely on – that’s one of the things we want to achieve in this term. We need clarity for the executive, so that you can make decisions and be confident in those decisions when you make them.”

Growing bureaucracy

Another strong warning to emerge from the report is the growing cost of Cayman’s government apparatus. The total expenditure of core government entities hit $639 million in 2024, up 41% from $453 million in 2020. And the lion’s share of that government spending went to civil servants, with personnel costs making up 68% of the total.

But the true cost of the state machinery is even greater, as the report highlighted a growing problem of unfunded healthcare for retired public-sector workers.

“Post-retirement healthcare obligations for Statutory Authorities and Government Companies total $394 million in 2024, representing a 10% increase since 2020,” said Smith. “These unfunded liabilities create extreme volatility and severely hamper effective financial planning.”

The problem is set to get worse, explained Smith in a 13 Oct. follow-up interview with the Compass. “The healthcare liability will continue to grow due to demographics factors e.g. people living longer, more persons becoming Caymanian and eligible for the benefit, the general rise of health care and inflationary factors,” said Smith. “Some entities have started funding plans to offset their respective liabilities, and this is a practice I hope would be employed across the public sector.”

Cayman’s bureaucracy isn’t just growing more expensive; it’s also becoming more complicated – to the extent that some state entities don’t follow the government’s own rules.

“I am disappointed that violations of the Procurement Act occurred in 20 public bodies, accounting for 80 per cent of all compliance breaches,” said Smith in the press release. “These violations persist several years after the Act came into force.”

The auditor general cited one example, where the Ministry of Education spent $2 million on ‘emergency’ campus refurbishment for a need that had been known for years. He called it “a clear misuse of emergency procurement provisions”.

One source from a local business, who asked to remain anonymous, said: “If a private sector company failed so consistently to meet its statutory obligations, heads would be required to roll and leadership changes required, and yet nothing changes in government.”

“It’s a really good report,” said another business source, “but I worry it will just be ignored.”