A long-existing, troublesome backlog in the completion, auditing and reporting of Cayman Islands government entity financial statements has just about been cleared up.
According to a report released Thursday by the auditor general’s office, of the 265 financial statements required to be completed between the 2004/05 and 2010/11 government budget years, the audit office has “issued” (finalised and reported) 236 opinions on those records. Another five audits have been finalised and seven other statements were exempted from audit due to changes in the law.
“There remains only 17 audits to be completed for the period between 2004/05 and 2010/11,” Auditor General Alastair Swarbrick noted in his report.
That’s the good news.
According to the audit office, the majority of the data from the backlogged years; particularly those issued by government ministries and portfolios – the central government service – are incomplete or useless for any public accountability function.
Of 67 audits completed for ministries and portfolios between 2004/05 and 2009/10, only eight were issued with “unqualified opinions”, meaning the information could be considered reliable.
For 32 of those reports, about 47 per cent, auditors had to issue a “disclaimer of opinion”. That means the statements could not be considered reliable or useful.
For statutory authorities and government companies, the situation gets a bit better.
For 142 completed and issued audit reports between 2004/05 and 2009/10, 73 (51 per cent) were issued with unqualified opinions and another 54 (38 per cent) were issued with qualified opinions, meaning most of the information was reliable except for certain areas specifically identified by auditors in their reports. Fifteen audits over those years received a disclaimer of opinion.
“[This situation] should worry anybody,” Mr. Swarbrick said.
Audits of the 2010/11 budget year financial statements were submitted in a more timely fashion and the information was generally more reliable, auditors said.
However, some problem areas still existed.
Of the nine completed audits for government ministries and portfolios during 2010/11, two entities received unqualified opinions and another six got qualified opinions. One opinion, for the Ministry of District Administration, was disclaimed.
Three audits remained outstanding as of 30 September. Those were the Portfolio of Internal and External Affairs, the Ministry of Education and the Ministry of Finance, Tourism and Development. Auditors said the Ministry of Education and Portfolio of Internal and External Affairs financial statements were “substantially complete’.
There were some delays with financial statements from the Ministry of Finance, Tourism and Development, which are apparently being presented as three separate entities, according to auditors. Mr. Swarbrick noted that annual budget statements for that ministry were presented as one entity and that it was standard practice for the financial statements to be presented in the same way.
However, auditors stated they would undertake audits of the financial statements for the three separate entities of tourism, finance and development.
“The audit opinion will be modified to indicate that the financial statements were not prepared in accordance with the [annual budget statements] as required by the [Public Management and Finance Law],” auditors stated. “A reconciliation with the [annual budget statements] is included in the financial statements.”
For the 18 audits completed for statutory authorities and government companies for 2010/11, nine received unqualified opinions and the other nine received qualified opinions.
When the 14 ministries and portfolios are completed for the 2010/11 budget year, auditors said it was likely that 12 of those will have presented information “that has a reasonable degree of reliability and credibility”. Between 2009/10 and 2010/11, auditors noted a “continuous improvement” in the quality of the financial statements being presented.
However, Mr. Swarbrick noted that underlying systems and internal controls that support production of government financial statements were not “sufficiently robust”.
“There is still a way to go before it can be said that financial accountability has been restored,” auditors said.
Another major area of concern was with the Entire Public Sector consolidated financial statements. Those reports consolidate all government entity financial statements and include executive transactions and balances of government. Executive transactions and balances are not included in the individual financial statements from government entities.
Executive transactions do represent “a significant element of the government’s financial transactions”, according to auditors.
“At the date of this report, the audit has reached a point that without further significant information, it is not possible to reach an opinion on the financial statements,” Mr. Swarbrick said. A “disclaimer of opinion” on the statements from the Entire Public Sector for the 2010/11 year would likely have to issued, he said.
Key issues that led to the failure with the Entire Public Sector statements were:
Disclaimers of opinion on some of the underlying financial statements that are used to produce the Entire Public Sector statements;
Health care liabilities were not stated or information provided;
There was also difficulty with representations from government regarding the “completeness of revenue”.
“Until we get the Entire Public Sector [report] tabled in the House in a timely fashion, we will not have accountability restored,” Mr. Swarbrick said.
While financial statements were turned in much more responsibly during 2010/11 and for last year, 2011/12, many of the older audits of financial statements which have been completed still have not been made public by lawmakers.
“The final step in ensuring the accountability and transparency of the public finances is through the tabling of the annual reports ... in the Legislative Assembly,” Mr. Swarbrick wrote. “Accountability delayed is accountability denied.”
As of 30 September, 71 annual reports or financial statements completed up through the 2009/10 financial year still require a formal tabling – the process by which they are made public – in the assembly. For the 2010/11 budget year, just five of the 27 completed financial statements have been made public, according to auditors.
“In some instances, the time since the financial statements were completed and signed off by all parties is close to two years and in many cases close to one year,” Mr. Swarbrick wrote.
The Public Management and Finance Law indicates that entities should table annual reports within two weeks of a mandated 31 October deadline or at the first subsequent sitting of the LA.
“I ... continue to have a significant concern about the timeliness of the tabling of these reports as it diminishes the usefulness of the information for members of the Legislative Assembly and the wider public and ultimately undermines effective accountability,” the auditor general said.