Further to our Front Page story in today’s iNews Cayman “Is it time to change how government manages financial reports?”, Deputy Governor, Franz Manderson has replied as follows:

Office of the Deputy Governor

June 11, 2013

Alastair Swarbrick, Auditor  General

Re: AUDIT REPORT “FINANCIAL ACCOUNTABILITY IN THE CAYMAN ISLANDS GOVERNMENT: A TIME FOR A CHANGE

Dear Alastair,

Thank you for meeting with myself and Mr. Gough regarding the above mentioned report and the opportunity to comment on your most comprehensive report. I hope we can work together to achieve the agreed recommendations.

Detailed below are my formal comments for inclusion in the report:-

I.          I agree with your recommendation to a review of the PMFL with a view to simplifying it, and I will support the Ministry of Finance with that task, providing any changes made do not undermine the performance management system which I require to manage the civil service.  Budgeting, accounting and performance management must be on the same basis to be effective.

2.         I will support all your efforts to improve parliamentary accountability and to improve the accountability of my Chief Officers.

3.         The FFR has validated the financial principles which the PMFL is based on, and therefore I do not support any changes which weaken or undermine those principles.

4.         The underlying principle of the Cayman Island’s Government Management Model is still valid “improving performance of the public  sector”. The key features of the model are:-

•          Explicit focus on results

•          Outputs and outcomes (Not Inputs)

•          Appropriations from LA to Cabinet on an Output Group Basis

•          Performance Assessments on all staff

•          Improved financial measurement

•          accrual accounting

•           Improved transparency

•          regular forecasting and reporting

•          Improved accountability (Cabinet, Chief Officers, Heads of Departments)

•          Greater delegation of input authority for HR and Finance to managers

These principles should be maintained when proposing any changes to the PMFL.

5.         The report focuses on financial reporting and accountability, making it easier to produce accounts to have fewer accounts to audit etc. However, this has to be balanced with two things, firstly public accountability and transparency and the citizens right to know in detail, not only what money we are spending on their behalf, but also what they are getting for their money. One financial statement to the LA could seriously undermine that requirement.

6.         Secondly, as Head of the Civil Service I have the responsibility for the performance of Chief Officers. I need a measurement regime that has more than a  financial component.

7.         Any changes to the PFML should not reduce the accountability of my Chief Officers for the proper management of the financial affairs of their Ministry. Any changes with regard to centralization should not undermine their accountability, and any change in reporting relationship of their Chief Financial Officers should not interfere with their management relationship.

8.         The suspension of interagency charging has reduced the accountability of the central agencies and has increased cost. In addition we are now not able to truly cost the services we provide as a significant proportion of our operating costs are borne by central departments, e.g. computer services and DYES (fuel). The concept of interagency charging is a good one if we are going to strive for better value for money for the citizens of this country we need cost the services we provide. Otherwise we will have no real cost data to use for decision making (to compare any service that could be open to competition to the private sector).

9.         I agree that outputs from some ministries have not been written very well and are too detailed and may have only a tentative link to outcomes. However, unless they are reported on there is no incentive to improve them. We need to learn from our variances. I will encourage all Chief Officers to review their outputs in light of the broad outcomes that will be established by the new government.

I 0.       I firmly believe and agree that unless we start with measureable outcomes and report on them we cannot demonstrate true parliamentary and citizen accountability.

II.         I think we should publish more information about what we are doing both in financial and performance terms not less. I understand that it would be easier for audit to deal with one set accounts but as I said earlier we do not want to compromise accountability and transparency

12.       I agree with the reintroduction of quarterly reporting, we now operate in a dynamic environment and I would go as far as introducing monthly output reporting. I would add that we need to get back to performance reporting on a regular basis, I need to know what my Chief Officers are achieving and where they are failing, institutional learning comes from analyzing our variances.

13.       Performance management is not just about financial management and reporting, at present outputs are the only measurements in place and they are the major contributors to Government outcomes. I accept the points raised about simplifying them and tying them more closely to outcomes. How are we going to assess value for money if we cannot evaluate the ratio of inputs to outputs?

14.       Appropriations should be focused on what the parliament wants the government of the day to spend their money on to achieve the broad outcomes of government within expenditure limits set by parliament.

15.       I have some concerns about your proposals for leadership of the finance function. “the PMFL has provided clear administrative responsibility to Ministry of Finance officials”, the Minister of Finance who has the constitutional responsibility for finance 9Section 54(1)b of the 2009 Constitution. All the main responsibilities set out in the report are covered in the PMFL, regulations, accounting policy etc and all point to the Ministry of Finance.

16.       I do not agree with splitting the strategic planning/budgeting function of finance functions from the accounting and reporting function this would lead to inefficiencies.

17.       I am not sure what is meant by function/professional reporting to the Chief Officer, Public Finance. The Chief Financial Officer is more than just an accountant; he/she is very much an integral part of the strategic management team. As long as this relationship does not conflict with direct management relationship with the Chief Officer, I have no problem with it.

18.       The issue of moving the Intemal Audit Unit to come under the Deputy Governor’s Office is currently being discussed by the Rationalization Team, I do not disagree with this recommendation.

19.       The combining of executive             and entity expenditure although convenient for accounting simplicity does compromise the role clarity and accountability issues between the Minister and the Chief Officer. Transfer payments like scholarships, Poor Relief, Ex-Gratia Payments to Seaman and Ex Servicemen are in the power of the Minister and not part of the Chief Officers service delivery responsibility.

If there are any points on the above you wish to discuss further please let me know.

END