Acting Auditor General Garnet Harrison today made public two reports on his Office’s audits of the 2012-13 and 2013-14 financial statements for Government ministries, portfolios and offices, as well as statutory authorities and government companies. The reports provide a summary of the audit opinions on those financial statements and the auditor’s assessment of the entities’ financial performance. The reports were sent to the Legislative Assembly at the end of September by outgoing Auditor General, Alastair Swarbrick.

“As we reported last year, the timeliness and quality of the accounting information presented for audit continues to improve,” said Mr. Harrison. “However, tabling audited financial statements without providing performance information to explain what was done with the money is not very useful to the Legislators and the public. The Government still needs to work out how it will provide the Legislative Assembly with that kind of meaningful information.”

In the two reports, the Acting Auditor General notes the significant progress made since 2010, when the former Auditor General found audits backlogged for years and a significant lack of capacity in Government that prevented the preparation of these important accountability reports. He points out that for the first time since 2004, when the Public Management and Finance Law came into effect, two of the largest government ministries did not receive an adverse or disclaimer of opinion. In addition, the audit backlog of ministries, portfolios and offices has been almost cleared. And more statutory authorities and government companies are meeting the October 31 statutory reporting deadline.

However, Mr. Harrison criticized the Government for again failing to make financial reports public on a timely basis. Many of the completed financial statements that Mr. Harrison audited for 2012-13 and 2013-14 had still not been tabled in the Legislative Assembly when his Office issued the two audit reports. He noted that when financial reports are tabled late without any management discussion and analysis or the necessary performance information, the Legislative Assembly has no opportunity to hold Government to account for the use of public funds. Mr. Harrison explained that Government officials first need to develop the systems and practices to collect the information for the required reports. It has not yet begun that work.

“The hard work of Government’s accountants and my Office to meet the statutory deadlines is undermined by these delays,” said Mr. Harrison. “Any opportunity for real accountability is lost, as long as the reports sit on someone’s desk.”

APPLICABLE TO BOTH REPORTS:

APPENDIX C – AUDIT OPINION DEFINITIONS

The opinions that I can render on an entity’s financial statements and their definitions are as follows:

• Unqualified – The information contained within the financial statements can be relied upon;

• Qualified – A qualified opinion means that a portion of the financial statements cannot be relied upon, but that the rest of the statements can be relied upon by the reader;

• Adverse – There are such significant deficiencies with the information in the financial statements they should be considered unreliable for the user and the information contained therein is not trustworthy;

and • Disclaimer – I was not provided with sufficient information to conduct an audit.

From “AG General Report Ministries, Portfolios and Offices  Years 30 June 2013 and 2014 – Final”

EXECUTIVE SUMMARY

I am pleased to present this report to the Legislative Assembly that summarises my Office’s financial audits of the ministries, portfolios and offices in core government (M&Ps) for the years ending 30 June
2013 and 30 June 2014. I believe that Members of the Legislative Assembly will find this report useful in their role to ensure financial accountability and transparency for Government operations.

Along with government’s summary financial statements, the annual reports and financial statements of the individual entities of government are the key documents that enable the Legislative Assembly and the residents of the Cayman Islands to hold ministries, portfolios, and offices accountable for their use of public resources.

Looking back to December 2010, when I delivered my first General Report on Financial and Performance
Reporting, the situation was appalling. At that time:

• 85 (or nearly 40%) out of 220 sets of entity financial statements were outstanding;
• only 40 (18%) out of 135 audited financial statements had actually been tabled in the Legislative Assembly and publicly available to citizens to see what revenues had been generated and how money had been spent; and
• only 7 of the 37 opinions issued on ministry and portfolio financial statements had been unqualified, and 18 or just under half had either been disclaimed or received an adverse opinion meaning the information contained in them could not be relied on.

Therefore, six years after the introduction of the PMFL there was no accountability for the generation and use of public resources. Just as concerning there did not seem to be a plan in place to rectify the situation.

I am pleased to report that nearly five years later the situation has improved significantly. Whilst there are still some significant challenges to be overcome, after a significant push in the second half of 2014 and first six months of 2015, we have nearly reached a position where the backlog of prior year financial statements has been cleared. No M&P financial statements for 2013-14 are likely to receive an adverse opinion or a disclaimer of opinion, and at least six of the fifteen M&Ps will receive an unqualified opinion. Financial year 2013-14 is also the first year that the Ministry of District Administration, Tourism and Transport and the Ministry of Planning, Lands, Agriculture, Housing and Infrastructure or their predecessors will not receive an adverse opinion or a disclaimer of opinion. Therefore the financial year 2013-14 in particular has seen some significant progress, and in relative terms the Government has come a long way from the dire situation that existed in 2010.

However, whilst the story is one of progress, there is still some way to go to achieving accountability as expected by accounting standards and as envisioned in the Public Management and Finance Law (PMFL). The Government is now much better placed to achieve this for the M&Ps, but it will still require a lot more work if it is to be achieved, in particular if the statutory timescales of the PMFL are going to be met.

In this report, I discuss some of the issues regarding the timely completion and publication of credible financial and performance information that will need to be addressed to achieve accountability as envisioned in the PMFL. In particular I raise ongoing concerns about:

• impediments to timely completion of the audit and issuance of financial statements;
• delays in tabling of annual reports/annual financial statements in the Legislative Assembly;
• M&Ps tabling financial statements rather than an annual report; and
• weaknesses in the internal control environments and governance of certain entities creating increased risks of mismanagement and abuse.

I have also reported my continuing concerns about deficiencies in the current financial reporting framework, as required under the PMFL, which in my view effectively obscures accountability and transparency in the use of public resources, and for the expenditures authorised by the Legislative Assembly.

For progress to continue towards the ultimate objective of restoring financial accountability, the Government should set clear goals for achieving accountability required by the PMFL, in both the short and medium term, and provide regular reports to the Legislative Assembly on the progress that has been made on achieving those goals.

My Office looks forward to continuing its work with Government and the individual entities as they continue on the path of improving financial reporting and restoring accountability for the use of public
funds.

CONCLUSION

97. This report provides a summary of our audits of the ministries, portfolios and offices of the Cayman
Islands Government for 2012-13 and 2013-14.

98. Whilst there are still some significant challenges to be overcome, the Government has made good progress in the last two years. They have nearly reached the position where the backlog of prior year financial statements has been cleared, and it is unlikely that any M&P financial statements for
2013-14 will receive an adverse opinion or a disclaimer of opinion, the first time this has been
achieved since the introduction of the PMFL in 2004. In particular 2013-14 will be the first year that the Ministry of District Administration, Tourism and Transport and the Ministry of Planning, Lands, Agriculture, Housing and Infrastructure or their predecessors will not receive an adverse opinion or a disclaimer of opinion.

99. However, whilst the story is one of progress, there is still some way to go to achieving accountability as expected by accounting standards and as envisioned in the Public Management and Finance Law, and ensure the effective stewardship of, and accountability for, public resources. In particular I have raised ongoing concerns about:

• impediments to timely completion of audits and public issuance of financial statements;
• weaknesses in the internal control environments and governance of certain entities creating increased risks of mismanagement and abuse; and
• the effectiveness of the current financial reporting framework to provide transparency in the use of public funds.

100. The Government is now much better placed to achieve the accountability expected by the PMFL across the M&Ps, but it will still require a lot more work if it is to be achieved, in particular if the statutory timescales of the PMFL are going to be met. There still remains considerable room for improvement, and senior officials need to ensure that they have in place appropriate systems that provide them with assurance regarding the stewardship and use of public funds they are responsible for.

101. For progress to continue towards the ultimate objective of restoring financial accountability, the Government should now set clear goals and develop a plan for achieving accountability as required by the PMFL, in both the short and medium term, and provide regular reports to the Legislative Assembly on the progress that has been made on achieving those targets.

102. The achievement of accountability for the use of public funds depends on strong leadership of the financial function in Government. This leadership is still inadequate as at the date of this report. I have discussed my concerns with the Deputy Governor about the lack of leadership in the past and the need for clear direction going forward. To ensure proper accountability, I have urged the Deputy Governor to resolve this issue as a matter of priority.

103. I strongly recommend that the Legislative Assembly take note of my findings in this report and act promptly to ensure the Deputy Governor and his senior officials take action to provide proper accountability for the use of public funds and mitigate the risks and opportunities for loss.

Alastair Swarbrick MA(Hons), CPFA, CFE 25 September 2015
Auditor General
George Town, Grand Cayman
Cayman Islands

From “AG General Report Statutory Authorities and Government Companies Years 30 June 2013 and 2014 – Final”

EXECUTIVE SUMMARY

I am pleased to present this report to the Legislative Assembly that summarises my Office’s financial audits of the statutory authorities and government companies (SAGCs) for the years ending 30 June
2013 and 30 June 2014. I believe that Members of the Legislative Assembly will find this report useful in their role to ensure financial accountability and transparency for Government operations.

Along with government’s summary financial statements, the annual reports and financial statements of the individual entities of government are the key documents that enable the Legislative Assembly and the residents of the Cayman Islands to hold statutory authorities and government companies accountable for their use of public resources.

Looking back to December 2010, when I delivered my first General Report on Financial and Performance
Reporting, the situation was appalling. At that time:

• 85 (or nearly 40%) out of 220 sets of entity financial statements were outstanding;
• only 40 (18%) out of 135 audited financial statements had actually been tabled in the legislative assembly and were publicly available to citizens to see what revenues had been generated and how money had been spent; and
• 38 of the 98 financial statements issued had qualified opinions, and four had been disclaimed.

Therefore, six years after the introduction of the PMFL there was no accountability for the generation and use of public resources. Just as concerning there did not seem to be a plan in place to rectify the situation.

I am pleased to report that four and half years later that the situation has improved significantly. Whilst there are still challenges to be overcome, after a significant push in the second half of 2014 and first six months of 2015, we have nearly reached a position where the backlog of prior year financial statements has been cleared. It is unlikely that any SAGC financial statements for 2013-14 will receive an adverse opinion or a disclaimer of opinion, and at least 17 of the 27 SAGCs should receive an unqualified opinion.

However, whilst the story is one of progress, there is still some way to go to achieving accountability as expected by accounting standards and as envisioned in the Public Management and Finance Law (PMFL). The SAGC’s are now better placed to achieve this, but it will still require a lot more work if it is to be achieved, in particular if the statutory timescales of the PMFL are going to be met.

In this report, I discuss some of the issues still preventing the timely completion and publication of credible financial and performance information that will need to be addressed to achieve accountability
as envisioned in the PMFL. In particular I raise ongoing concerns about:

• impediments to timely completion of the audit and issuance of financial statements. Only 15 (prior year: 12) of the 27 entities were completed in line with the statutory timetable;
• delays by Ministries in the tabling of SAGC annual reports/annual financial statements in the
Legislative Assembly;
• tabling of financial statements instead of annual reports required under the PMFL; and
• significant control weaknesses and weak governance in certain entities creating risk of mismanagement and abuse of public funds.

In this report, I have also included commentary on the financial performance and position of the entities I have audited. The financial results reported by the SAGCs provide a mixed picture, although overall there is an improvement in financial performance over the year. Nine entities reported a deficit for the year ending 30 June 2014, with at least 4 of them under significant financial strain and having challenges meeting their current obligations. This will continue to be the case in most instances without changes in operations, business restructuring or ongoing and further Government support. For a number of other entities, whilst not having any immediate challenges in meeting their obligations, there are still warning signs of potential future challenges if action is not taken to address them in the short term.

For progress to continue towards the ultimate objective of restoring financial accountability, the Government should set clear objectives and goals for all SAGCs to achieve accountability as required by the PMFL, in both the short and medium term, and require them to provide regular reports to Government and the Legislative Assembly on the progress being made on achieving those goals. In light of concerns I have raised in the past and this report’s findings, I would recommend that the Legislative Assembly be provided with a comprehensive plan by the end of 2015.

My Office looks forward to continuing our work with Government and the individual entities as they continue on the path of improving financial reporting and restoring accountability for the use of public
funds.

CONCLUSION

124. This report provides a summary of our audits of the statutory authorities and government companies of the Cayman Islands Government for 2012-13 and 2013-14.

125. Whilst there are still some significant challenges to be overcome, the SAGC’s have continued to make good progress in the last two years. They have nearly reached the position where the backlog of prior year financial statements has been cleared, and it is not expected that any SAGC financial statements for 2013-14 will receive an adverse opinion or a disclaimer of opinion.

126. However, whilst the story is one of progress, there is still some way to go to achieving accountability as expected by accounting standards and as envisioned in the Public Management and Finance Law to ensure the effective stewardship of, and accountability for, public resources. In particular I have raised ongoing concerns about:

• impediments to timely completion of audits and public issuance of financial statements;
• weaknesses in the internal control environments and governance of certain entities creating increased risks of mismanagement and abuse;
• the capacity of some of the smaller entities to implement effective financial management, governance and internal control arrangements;
• delays in tabling entity reports and making results public; and
• the financial strain that a number of entities face.

127. SAGC’s are now better placed to achieve the accountability expected by the PMFL, but it will still require a lot more work if it is to be achieved, in particular if the statutory timescales of the PMFL are going to be met. There remains considerable room for improvement in the governance, internal controls and financial management of a number of entities. Senior officials need to ensure that they have in place appropriate systems that provide them with assurance regarding the stewardship and use of public funds they are responsible for, and that as much value is being extracted from the public purse as possible, in particular within those entities that are under financial strain.

128. For progress to continue towards the ultimate objective of restoring financial accountability, the Government should now set clear targets for all SAGCs achieving accountability as required by the PMFL, in both the short and medium term, and require them to provide regular reports to the Government and the Legislative Assembly on the progress that has been made on achieving those
targets.

129. I strongly recommend that the Legislative Assembly take note of my findings in this report and act promptly to ensure the Deputy Governor and his senior officials take action to provide proper accountability for the use of public funds and mitigate the risks and opportunities for loss.

Alastair Swarbrick MA(Hons), CPFA, CFE 25 September 2015
Auditor General
George Town, Grand Cayman
Cayman Islands