September 21, 2020

Change of laws poses risks, says accountant

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Kenneth Krys, CEO of KRyS Global

Changes to accounting laws that regulate how government keeps financial records run the risk of allowing agencies to relapse into the inadequate bookkeeping practices that have plagued government for years.

Changes to the Public Management and Finance Law, introduced in 2005 and amended several times since, will enable government to clear long-standing accounting arrears. However, fears linger that easing the regulations will leave the initial problems unaddressed.

Kenneth Krys, founder and CEO of international accountants KRyS Global, which specializes in insolvency and forensic accounting, said that while the changes would enable government to correct arrears dating as far back as 2004, the question remained whether they provided “policies and procedures, and the right people, to assess the future”.

Last Wednesday, Premier McKeeva Bush pushed through the Legislative Assembly a series of amendments to the management and finance law that would enable easier accounting and “fix those issues with the law itself or the underlying accounting systems and procedures”.

He said that government had consistently broken the law by not completing annual accounts for at least six years, but, essentially blamed the complexities of
the regulations.

Keith Luck, finance management consultant from London’s Foreign and Commonwealth Office’s, invited in February by Governor Duncan Taylor to study Cayman’s accounting laws, had recommended three major changes: suspension of quarterly reporting; an end to output reports and audits for 2004/’05 and 2007/’08; and a reduction in accounting by government’s two dozen statutory authorities and government companies.

The Auditor-General, Mr Bush said, had agreed with the recommendations, saying, for example, that output statements were “very limited in value and did not provide effective
public accountability”.

Cayman’s previous Auditor-General Dan Duguay said three years ago that as much as $1.5 billion in public money remained unaccounted for because of slack practices throughout government departments, statutory bodies such as the Hospital Services Authority (HSA) and government-owned companies such as Cayman Airways and the Cayman Turtle Farm.

While the HSA and Turtle Farm have remedied much of their arrears since then, outstanding accounts still abound.

“Looking at the Auditor-General‘s comments, the reports are adverse. The financial information is so bad and so materially misrepresented that you can’t interpret it,” Mr Krys said. “You cannot tell anything about the past six years or seven years. If people have taken money from the coffers, you can’t account for it.

“So this is a get-out-of-jail-free card,” he said, alluding to Wednesday’s legal changes, “but the question is if you can stop [similar practices] in the future? There will be no quarterly financial reports and no output reports. And if you can’t say what happened in the past, it is going to skew how you finish.

“It may mean a better use if resources,” Mr Krys said, “but it doesn’t really tell you much.  This is the public’s money that we’re accounting for. If this were a real corporation, you’d have to
remove yourself.

“The only hope going forward is that the resources are properly allocated,” he said.

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