The Cayman Islands government was saved by a timely audit from overpaying $1.8 million on various capital projects in the Ministry of Education, according to a report obtained by the Caymanian Compass under the Freedom of Information Law.

The review by government’s Internal Audit Unit looked at millions of dollars’ worth of what are known as ‘equity investments’ made on behalf of various government ministries and portfolios. It found that those entities needed to pay closer attention to how approvals for capital purchases and construction projects were made.

“A few ministries and portfolios had significant deficiencies in their procedures,” the audit report said. “(These) were noted particularly in the monitoring of disbursements to avoid double funding, the safekeeping of documents and in the recording of transactions.”

The review covered the period between 1 July, 2007, and 31 March, 2008, but its results have never been released to the public until now.

Auditors also said that no effective oversight controls existed in the disbursement of equity investment funds until they reviewed the process - sometimes after that money had been appropriated. The Internal Audit Unit noted that nearly $90 million worth of equity investments had been approved between July 2007 and March 2008.

“The Treasury Department’s role is not one of full and detailed monitoring, but a disbursement one,” the report stated. “There is therefore no effective oversight of the disbursement of funds until an audit is carried out.

“This management oversight is a critical aspect of the governance process that must be functional if the equity investment portion of the public sector finances is to be effectively managed in compliance with the Public Management and Finance Law.”

An equity investment is basically funding provided by government – upon the approval of Cabinet – that is deposited into a government ministry or portfolio’s executive bank accounts. Typically, those funds are granted to replace an agency’s existing assets or to buy new assets.

Some of the auditors’ findings regarding the disbursements of these funds were relatively minor procedural matters, such as 19 equity investments being processed without the original signed requests for the money.

Others were more serious, such as situations where ‘double funding’ had occurred or where supporting documents for equity investment requests could not be located and verified.

For instance, 14 transactions processed for the Ministry of Education – amounting to $1,833,762.25 – had already been included in previous funding requests from the ministry. In effect, the government would have paid for these items twice.

“However, no actual duplicate vendor payment was made and these were all corrected in May 2008 after internal audit brought this to the attention of the chief financial officer,” the audit report read.

A similar situation involving a $200,000 investment in the Portfolio of Internal and External Affairs was caught and later corrected, according to the review.

The auditors also looked at a sample of 373 equity investment transactions processed between July 2007 and March 2008 and found that in nearly 200 of those requests, supporting documentation could not be provided by the relevant ministry.

“Poor record keeping practices are contributing to the unavailability of some documents required for the audit,” the report noted. “Inadequate retention of supporting documents such as these eliminates the audit trail required by the financial regulations.”

Since the audit was completed and a report released internally to the government in August 2008, auditors noted that most of their recommendations aimed at improving the equity investment funding process had been accepted and implemented.