July 26, 2021

How core government manages resources

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Core FrontwebFrom The Office of the Auditor General (OAG)

EXECUTIVE SUMMARY: Governance in the Cayman Islands Government

Good governance in the public sector encourages the efficient and effective use of resources, strengthens accountability for the stewardship of those resources, Improves management and service delivery, and thereby contributes to improving peoples’ lives.

The foundation for the governance framework in the Cayman Islands Government  has been established by the Public Management and Finance Law as recently amended for the Framework for Fiscal Responsibility, the Public Service Management Law and the Constitution. The framework has been designed to achieve a very high standard of accountability and transparency for a country of the Cayman Islands size.

Our audit found that the governance framework is solid but there are aspects of the legislation that are difficult for government to implement, as it is complex and demands too many administrative resources for the benefits being received. As a result we are concerned that not all aspects of the governance framework are being implemented, or complied with, which weakens overall governance.

For example I found that there are significant weaknesses in the implementation of the current framework that preclude the Government  from being accountable for the results it obtains and how it tells the public about its performance. In some cases, such as the management of executive transactions, I found that the fundamental controls that ensure the lawful expenditure of public funds and expected controls outlined in the legislation were not sufficiently robust to prevent any potential abuse or misuse of public funds. Other matters identified in the report include:

•          Whilst the framework provides clarity about the functions and roles of various players there are areas where ambiguity exists leading to potential exposure for misuse and abuse of public funds. We also observed instances where the roles identified in the governance framework were not being fulfilled.

•          Changes made with the introduction of the PMFL to redefine performance to focus on results, develop stronger strategic processes linked to the budget, clarify roles, and establish effective accountability mechanisms have largely not achieved the desired impact.

•          The governance framework does not have a focus on achieving clear and measureable results for citizens and service users with the exception of the PMFL’s principles of responsible financial management. High level statements of intended results are part of Governor in Cabinet’s Strategic Policy Statement  (SPS) but each succeeding planning phase after the SPS is increasingly focused on activities rather than results.

•          The Constitution and PSML establish and strongly endorse values and ethics as a guide to public service behavior and decision making, and this is promoted by the Deputy Governor and the Portfolio of the Civil Service. However, our audit indicated that values and ethics were not embedded across Government and have been applied selectively.

•          The governance framework calls for risk management to be considered in the management of resources and decision making. However, rather than assessing the risks that could impact on the achievement of results, risk management has been focused on operations.

•          The governance framework has not been supported by credible and timely reporting of non­financial and financial performance results.

The report contains twelve recommendations for how governance in core government can be improved. It is important to recognise that the Government is now taking action to address a number of the issues we discuss in this report. However, It will continue to take significant leadership by the Deputy Governor together with the support of the political government to ensure that the Cayman Islands Government has a governance framework that meets its needs and is fit for purpose.

I look forward to working with the Government as they take up this significant challenge.

CONCLUSION

99.       The core government governance framework is largely established through the Constitution, the Public Management and Finance Law (PMFL),and the Public Service Management Law (PSML). Our audit found that the legislation is fundamentally strong but there are aspects of the legislation that are difficult for government to implement as it is too complex and demands too many administrative resources for the benefits being received. We are concerned that not all aspects of the governance framework are being implemented which weakens overall governance. In addition, the governance framework does not adequately clarify the roles to be played by the GIC, ministers, and chief officers for significant transactions, such as procurement and major capital projects.

100. The Government has now entered into an agreement with the United Kingdom, the Framework for Fiscal Responsibility, which sets out a plan for returning to a financial position that can meet the specific financial result expectations that are embedded in the PMFL. There are also requirements in the agreement for the Government to address weaknesses in the governance framework.

101. Changes made with the introduction of the PMFL were made to redefine performance to focus on results, develop stronger strategic processes linked to the budget, clarify roles, and establish effective accountability mechanisms. Our audit has found that the desired impact of the changes has largely not been achieved.

102. The governance framework does not have a focus on achieving clear and measureable results for citizens and service users with the exception of the PMFL’s principles of responsible financial management. High level statements of intended results are part of Governor in Cabinet’s (GIC) Strategic Policy Statement but each succeeding planning phase after the SPS is increasingly focused more on government activities. Cabinet has not ensured that national policies have been developed that set out what is expected to be achieved and how it will be achieved for significant areas of government operation, for example health and education.

103.The Constitution, PMFL and PSML provide clarity about many functions and roles of various players; yet, the governance framework is very complex and some aspects have proven costly and difficult to implement. We are concerned that there are some specific areas where ambiguity exists or where there is potential exposure for misuse and abuse of public funds.

104.  We observed instances where the roles identified in the governance framework are not being fulfilled. For example, it is GIC prime role to establish policies that are to guide ministries and portfolios’ program implementation. Many national policies don’t exist in written form with Cabinet making most decisions as important matters arise.  However, for many of these decisions, the governance framework clearly gives these responsibilities to chief officers as part of their responsibilities to deliver the outputs that they have agreed to deliver to the GIC. There is a need for the roles of the GIC, ministers and chief officers over significant government transactions to be clarified within the governance framework.

105. The Constitution and PSML establish and strongly promote values and ethics as a guide to public service behavior and decision making. We are concerned, however, that many officials we talked with felt that there is a culture that chooses to ignore the legislated values and ethics, or applies them selectively. There is a need for the Deputy Governor  to provide leadership for developing and enforcing a policy that clarifies how the PSML should be implemented. It is clear that legislation alone will not ensure that the desired values and ethics are followed.

106.The Commission for Standards in Public Life is an important part of the values and ethics approach but it has not been given the necessary enabling legislation to ensure that the Commission can fully perform its functions in a proper, timely and effective manner. The absence of enabling legislation impacted its ability to maintain a Register of Interests for elected officials, and to monitor compliance with and investigate potential breaches of the Constitution based standards in public life.

107.Submissions to Cabinet for key decisions identify clearly the need being addressed, document viable options for addressing the need, include a complete analysis of the options, and a conclusion reached on the alternatives and a recommendation. Decisions of Cabinet are accurately communicated to Chief Officers. While most items we examined met these requirements, we did observe that exceptions arise where submissions do not follow the established procedures.

108.The governance framework calls for risk management to be considered within the planning and budgeting phase. This is done as part of the annual planning and budgeting process but it is not supported by an ongoing risk management system that identifies, evaluates and responds to risks that could impact on the achievement of results. Those risks identified during the planning and budgeting process focus more on operational issues rather than risks that could impact the achievement of results.

109.The governance framework is not supported by credible and timely reporting of results. Financial information on core government, either for all of government or for individual ministries and portfolios, has been historically late or not subject to audit on a timely basis. The OAG continues to identify significant financial management issues within core government. We have observed that improvements have been made in recent years. However, information on the results achieved by government programs is largely not available. Combined these observations mean that accountability within core government is significantly undermined.

110.Throughout this report, we have reported our concerns for the manner in which key aspects of the Public Management and Finance Law is being implemented. We believe that together the issues faced are so significant that the Government should consider whether a new simplified approach is needed. This would require the PMFL to be fundamentally overhauled!

See attached recommendations.

More information regarding this report can be obtained by contacting Martin Ruben at the Office of the

Auditor General at (345) 244-3206. A copy of the report is available at www.auditorgeneral.ky.

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