The Auditor General, Alastair Swarbrick, made public on Friday (14) a report on the management of the Nation Building [Fund] (NBF) Programme that operated from 2009 through early 2013. The report describes a catalogue of issues with the management of the programme and the $13.4 million spent by Government.
The Programme was operated out of the former Premier’s Office and was described by the Government as “…supporting schools, sporting, cultural and other voluntary organizations…scholarship grants to young persons and grants to churches…” The audit found that it was unclear what the Programme was designed to achieve and that many of the payments were not used for their intended purpose.
“The Nation Building Programme is an example of how not to manage or operate a government programme,” said Mr. Swarbrick. “Government officials needed to step up and fulfil their obligations to ensure that public money was spent prudently and properly accounted for. This did not happen and in this instance with every dollar spent, there was significant risk for misuse and abuse.”
The report describes how many of the students receiving support for attending schools were also receiving funding from another government department. The report also points out that some of the payments circumvented key legislative controls in place for the spending of public funds.
Noting the lack of clear guidelines for how government officials are to effectively deliver Government services and programmes, the Deputy Governor has committed to their development in the next year in responding to the report’s recommendations.
“While I am very concerned about what I found and reported to the Legislative Assembly about this Programme”, said the Auditor General, “I am pleased, on the other hand, to see that the Deputy Governor is committed to taking appropriate measures to ensure that future programmes are effectively managed and delivered.”
More information regarding this report can be obtained by contacting Martin Ruben at the Office of the Auditor General at (345) 244-3206. A copy of the report is available at www.auditorgeneral.gov.ky.

Premier, Deputy Governor respond to Auditor General Nation Building Programme report
In response to the “Management of the Nation Building Programme (2009-2013)” report the Office of the Auditor General released, both the Premier and Deputy Governor agree to fully implement the report’s recommendations and take appropriate measures to ensure that future programmes are effectively managed and delivered to achieve value for money, accountability and transparency.
“This audit, which relates to expenditure during the UDP administration between 2009 and 2013, presents an opportunity for the elected government and the civil service to work together to strengthen the good governance framework over transfer payments and to ensure that future programmes can withstand scrutiny”, said Premier Hon. Alden McLaughlin. “Elected officials and civil servants should play separate and distinct roles in delivering government programmes; however, given the concerns raised by the Auditor General, it is clear that these roles need to be more clearly defined and enforced.”
“The civil service takes the concerns raised by the Auditor General seriously and I have committed to take the necessary steps to ensure that civil servants comply with the new framework, which will mandate that public expenditure transactions and programmes meet the four tests of propriety, regularity, value for money and feasibility,” said Deputy Governor Hon. Franz Manderson.
We wish to assure the public that the framework will be implemented in the short term and we will work with the Audit Office to ensure that the programme addresses the concerns raised in this audit.

EXCEPRTS FROM OFFICE OF THE AUDITOR GENERAL’S “Management of the Nation Building Programme”

EXECUTIVE SUMMARY

From 2009 to June 2013, the Legislative Assembly approved budgets for a transfer payment programme known as the Nation Building Programme. A total of $13.2 million was paid out in those years under the line items in the approved budgets. Because of significant public interest in how these funds were used, the Office of the Auditor General conducted a performance audit to determine the extent to which
these payments provided value to the people of the Cayman Islands. The audit reviewed whether the Nation Building Programme was operated in accordance with expectations for a government transfer payment programme and whether the funds paid to recipients were used for the intended purposes.

The audit found that there was an ineffective control framework in place for the operation of the Programme, which we determined was operated outside the Government’s own governance framework. In addition, the audit found there were no standard Government-wide policies and practices in place for this kind of programme during the audited time period. In reviewing how this Programme operated, we found that there was no formal application process and that individual payment amounts were approved by the former Premier and his chief of staff. Government officials whose roles under law were to manage government transfer payment programmes did not fulfill their responsibility to ensure value for money and compliance with legislative authority. They simply signed the cheques to recipients for payments approved by the former Premier.

In reviewing a large sample of payments made over the approximately four years the Programme was operating, we found that there was no accountability for how the funds were used and that, in some cases, funds appear to have been used for purposes other than “nation building”. For example, some of the payments were used to subvert legislative controls over the use of funds by other government programmes. Other funds were paid to individuals for activities that made no apparent contribution to the Government’s own definition of nation building. Because little documentation was held by the Government or made available to us by the recipients, we were unable to determine how much value was received from $13.2 million paid out and the extent to which any was misused or abused.

We therefore concluded that the Government mismanaged $13.2 million in payments made out of the Nation Building Programme. More important, however, we concluded that senior government officials who should have been involved in the management of this Programme failed to carry out the roles required by their employment and the laws they were required to uphold. We have therefore made three significant recommendations to the Government that, if properly implemented, would ensure that a situation like this should never happen again.

The Deputy Governor has assured us that he has taken the findings of this report very seriously and that he will ensure that the recommendations are fully implemented.

CONCLUSION

76. We concluded that the Government failed to effectively manage over $13.2 million of public money funded under the Nation Building Programme, and this led to a significant waste and abuse of public funds. It also created the potential for corruption, given the ineffective controls and the full discretion of the former Premier’s Office over who should receive support. We found that a significant amount of the public funds spent under the auspices of the Nation Building Programme provided no apparent value to the people of the Cayman Islands.

77. We also concluded from our audit that senior government officials failed to discharge their duties to safeguard public funds, failed to protect the public interest and, ultimately, failed in their duties under the law. In effect, senior officials failed to meet their fundamental management obligations.

78. While the program ended in 2013, we believe that the same situation could happen again. The improper behavior we found by politicians and senior government officials can be prevented in the future only if a lack of due regard to the laws relating to the expenditure of public funds for the payments from the Nation Building Programme is clearly acknowledged, with a willingness to implement additional controls in order to prevent a repeat occurrence.

79. From our previous work on governance, we believe that the Constitution, the Public Management and Finance Law, and other laws provide a good control framework for ensuring that public funds are spent effectively to achieve the desired results and that accountability for their use is required for reporting back to the Legislative Assembly. We strongly believe that the control breakdown leading to the findings in this report was the result of a public service culture that made it very difficult to challenge Ministers about their actions, even actions clearly outside their roles under the Constitution and laws of the Cayman Islands. We determined that the organizational culture existing during the time of the operation of the Nation Building Programme allowed senior public servants to not fulfil their responsibilities and permit Ministers to overreach and abuse their position.

80. In our recent discussions with the Deputy Governor and his senior officials, we have been assured that there will be no tolerance in future for this kind of situation. We were also informed that there will be no tolerance for officials stepping aside from their required duties while Ministers make decisions outside their own lawful roles regarding the use of public funds.

81. While I acknowledge the Deputy Governor’s commitments to support the duties of senior officials responsible for the spending of public funds, I recommend that the Government take further measures to implement the risk management and control frameworks necessary to prevent situations like this. In addition, I recommend that the Deputy Governor and his senior officials provide the Legislative Assembly with ongoing assurance that the control frameworks in place are operating effectively and, to the best of their knowledge and ability, are preventing a repeat of this kind of activity.

Alastair Swarbrick MA(Hons), CPFA, CFE 24 July 2015
Auditor General
George Town, Grand Cayman
Cayman Islands

SEE ALSO EXHIBITS AND APPENDIX AS ATTACHED