From Office of the Auditor General Cayman Islands Government

The Office of the Auditor General (OAG) has published its compendium report “Financial Reporting of the Cayman Islands Government: General Report 31 December 2018” which summarises the results of the financial audits for the year 2018 for the 40 public sector entities in the Cayman Islands, which includes all Ministries, Portfolios, Offices, Statutory Authorities and Government Companies. Auditor General Sue Winspear said “The 2018 entity financial audits are mostly complete with only four entities outstanding at this time. I am delighted that of the 36 audited so far, I have not given a single audit qualification which demonstrates the marked improvement in the quality of government financial reporting over the years. It also means that by the end of 2019, my office has virtually cleared the audit backlog leaving only four entities still with audits outstanding*”.

The report shows that in 2008‐09, only 37% of entity audits were unqualified with 39% of them being qualified and 24% disclaimed compared to 100% unqualified to date for the 2018 audits. Mrs Winspear continued “The 2018 audit of the consolidated Entire Public Sector account which includes all 40 entities and the “executive” expenditure and coercive revenues of Government remains outstanding and this audit received an adverse audit opinion in 2016‐17”.

The financial results of Statutory Authorities and Government Companies (SAGCs) continues to show a mixed picture with the Port Authority and Water Authority returning to profit for the first time since 2014‐ 15. However, 13 SAGCs recorded a deficit in 2018 and several of these have had a long standing deficit position.

The Auditor General made a series of recommendations to continue improving financial reporting in Government, including the need for annual reports to be laid in the Legislative Assembly in a timely way to ensure accountability and compliance with the law but most importantly to help inform the public of all the work being done by public sector entities in a timely way.

More information about these reports can be obtained by contacting Ms. Winspear at (345) 244‐3201 or Patrick Smith, Deputy Auditor General (Financial Audit) at (345) 244‐3204.

The report is available at http://www.auditorgeneral.gov.ky.

*the four entities outstanding for 2018 are: the Ministry of Health, Environment and Culture, the Airports Authority, the Turtle Centre and Cayman Airways Limited. The Ministry of Health, Environment and Culture, and the Airports Authority are outstanding for the prior period of 2016‐17 as well.

EXECUTIVE SUMMARY

The annual reports and financial statements of the Government are the key documents that enable the Legislative Assembly and the residents of the Cayman Islands to hold the Government and individual public sector entities accountable for their use of public money.

The 2018 entity financial audits for the most part are complete and I am delighted that to date no entities have received a qualified opinion which is an improvement on past years. It is worth noting though that the consolidated Entire Public Sector (EPS) account which includes the consolidation of the 40 public sector entities along with the “Executive” expenditure and coercive revenues of the Government has not yet been audited for 2018. For the 2016‐17 financial period, the EPS account of Government received an adverse opinion due to numerous issues.

In this report, I describe the state of financial management and reporting in the Cayman Islands public service over recent years and make suggestions for improvement. The report provides appendices that are rich in information about the financial performance of the individual Ministries, Portfolios and Offices (Appendix D) and Statutory Authorities and Government Companies (SAGCs) (Appendix C), supporting financial analysis on them (Appendices E and F) as well as the status of the 2018 audits including the audit opinions I have issued and details of the nature of the qualification points I have given for the prior period 2016‐17 (Appendices A, B and G).

Entities are now routinely preparing annual reports to accompany their financial statements and I recommend that MLAs and the public read these to get a fuller understanding of government business. I also urge all entities to lay their annual reports and financial statements in the Legislative Assembly in a timely manner and publish these on their websites.

The financial results reported by SAGCs provide a mixed picture. The Port Authority and the Water Authority both recorded surpluses in 2018 for the first time since 2014‐15, but some 13 SAGCs recorded a deficit in 2018 with UCCI, the National Drug Council and the National Gallery going from a surplus in 2016‐17 to deficit position in 2018. Appendix E gives this detail and demonstrates that a good proportion of SAGCs show signs of being under financial strain and CINICO, the Turtle Centre, Cayman National Cultural Foundation and both the Sister Islands Affordable Housing Development Corporation and National Housing Development Trust have all consistently recorded year on year deficits. This will continue to be the case in most instances without changes in operations, business restructuring or ongoing and further government support or changes in government policy.

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

1. This report provides a summary of our audits of Ministries, Portfolios, Offices, Statutory Authorities and Government Companies of the Cayman Islands Government for 2018.
2. The quality of the Government’s financial reporting has improved significantly over recent years culminating in no entity being given a qualified audit opinion so far for their 2018 financial statements.
3. There has also been a marked increase in the number of entities preparing and tabling annual reports rather than only financial statements; thereby meeting a key requirement of the Public Management and Finance Law and enhancing the level of financial accountability to key stakeholders.
4. As has been noted in previous general reports, the achievement of proper accountability for the use of public funds is indicative of the strength of the functional leadership in the Government and specifically the strength of the leadership over the finances of the country, so it is encouraging to see that those charged with this stewardship are taking positive and proactive steps to improve the management of public resources. That said, the audit of the consolidated EPS statement remains outstanding for 2018 and the most recent audit opinion for 2016‐17 was adverse.
5. Whilst the story is one of progress regarding financial reporting, specifically at the individual entity level, there is still more that can be done before achieving the level of accountability as expected by accounting standards and as envisioned in the Public Management and Finance Law.
6. The most significant accountability and efficiency improvements I recommend are the timely laying of annual reports including the financial statements and audit opinions in the Legislative Assembly and then publication on the entity and Legislative Assembly websites to improve accountability and stronger functional leadership being provided to all public sector entities through the Ministry of Finance.
7. In addition to these recommendations, there remains some matters which still impede the production of relevant and reliable financial statements and steps should be taken to remove these impediments to further improve the timeliness, quality and usefulness of the financial statements:
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    untimely or incomplete supporting schedules causing issues with achieving the statutory audit deadline;
    weaknesses in the internal control environments and governance of certain entities creating increased risks of mismanagement and abuse;
   General Report on the 2018 Financial Audits
    non‐compliance with laws and regulations; and  The capacity of some smaller entities to implement effective financial management,
   governance and internal control arrangements.
8. As the Government continues to bolster its financial reporting it must now place emphasis on enhancing the framework for reporting service performance information with the objective of demonstrating how effectively and efficiently public resources are used, and the outcomes and benefits achieved.