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FINAL REPORT TO H.E. THE GOVENOR
THE PREMIER
THE DEPUTY GOVERNOR & HEAD OF THE CIVIL SERVICE
REVIEW OF THE FINANCIAL AND HUMAN RESOURCE MANAGEMENT SYSTEM OPERATED BY
THE CAYMAN ISLANDS GOVERNMENT
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FINAL REPORT TO H.E. THE GOVENOR
THE PREMIER
THE DEPUTY GOVERNOR & HEAD OF THE CIVIL SERVICE
REVIEW OF THE FINANCIAL AND HUMAN RESOURCE MANAGEMENT SYSTEM OPERATED BY
THE CAYMAN ISLANDS GOVERNMENT
Page
CONTENTS 2
PREAMBLE 4
EXECUTIVE SUMMARY 4
BACKGROUND AND INTRODUCTION 6
THIS REVIEW 6
METHODOLOGY 7
SUMMARY FINDINGS AND RECOMMENDATIONS 9
1 Have the Strategic Objectives been met? 9
2 Amendments to Laws and Regulations 13
3 The IRIS System 20
4 Recommendations and Implementation Planning 22
BROADER OBSERVATIONS 24
1 Overall burden and complexity 25
2 Governance and organisational weaknesses 26
3 Lack of clarity of roles 29
COMPARATIVE ECONOMIES 30
CONCLUSION, NEXT STEPS AND ACTION PLAN 31
ACKNOWLEDGEMENTS 32
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APPENDICES 34
APPENDIX 1 - Review of Previous Studies and Reports 35
APPENDIX 2 - Detailed Review of PMFL 44
APPENDIX 3 - Detailed Review of PSML 58
APPENDIX 4 - Commentary on the Review of the PMSL from CISCA 64
APPENDIX 5 - Recommendations and Ideas arising from the HR Forum 71
APPENDIX 6 - Recommendations and Ideas arising from the CFO Forum 78
APPENDIX 7 - Implementing the Changes: An Approach and Overview 86
APPENDIX 8 - An Outline Implementation Plan 88
APPENDIX 9 - A Project Plan for Closing the 2010/11 Accounts 93
APPENDIX 10 - “The Public Finance Programme” : Suggested Governance Structure 105
APPENDIX 11 - Terms of Reference 107
APPENDIX 12 - Bibliography and References 110
APPENDIX 13 - List of those Groups and Individuals Interviewed 111
APPENDIX 14 - Selected Glossary 114
APPENDIX 15 - About the Author 115
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PREAMBLE
I submit my final report as required under the Terms of Reference of my appointment. In
doing so I wish to record that this review has been welcomed by almost everyone I saw or
spoke to. I have found a number of different groups – politicians, the private sector, civil
and public servants and some public commentators – who all agree that the current system
is not working as intended. All want to work for a better Cayman, but to different degrees
feel frustrated with the current systems. There is a clear desire for change.
My discussion with the Cabinet reinforces this perception and, to be honest, I am relieved.
Writing a report that simply sits on the shelf is not the outcome of a successful review. This
review has helped the Government of the Cayman Islands, those operating the system and
those who take an interest in it to take time to evaluate the merits or otherwise of the
current processes.
People have given generously of their time and spoken honestly. I am conscious of being
new and raw in the ways of Cayman. Perhaps that has helped, but the Premier amongst
others has correctly reminded me that there are difficulties in operating in a small island
where everyone can know everyone else and no-one can be entirely independent. This
brings its own challenges and difficulties in Governing.
EXECUTIVE SUMMARY
I have been asked to:
1 Examine if these reforms have met their strategic objective
2 Propose any amendments to the Laws, Regulations
3 Examine if the IRIS system is fit for purpose, and
4 Propose recommendations and an implementation plan
I found that while the reforms were reasonably successful to begin with not all the early
gains have been sustained. The system has become increasingly difficult to maintain and
the recent economic downturn has brought the current weaknesses into sharp relief. A
significant concern is the absence of robust Departmental Accounts, but it is the lack of
Consolidated Accounts for Government, let alone an Entire Public Sector (EPS) Account, that
has to be the biggest failing. Without these the Government and people of the Cayman
Islands are without their key controls. Rectification of this is my first recommendation,
beginning with an urgent project needed to bring about the successful closure of this year’s
financial accounts.
My principal recommendation however is a strategy of radical simplification. This needs to
begin alongside closure of this year’s accounts. It will require a rigorous and resolute focus
on simplification, standardisation and burden reduction. In other words, getting back to
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basics and then re-building from there in due course where necessary. I support the steps
the Cabinet have already taken in this regard. I also support the completion of the current
year’s budget cycle but strongly recommend that the extent to which Outputs and Output
Reporting are used to control and drive appropriations is seriously examined. I recommend
being as robust as possible in reducing the use of these. Output Groups and fewer output
measures may well be the acceptable way forward.
To support this strategy of radical simplification I have made detailed recommendations in
Appendices 2 and 3 to the current Laws and Regulations. Further detail is contained in
Appendices 5 and 6 which summarise the views of those who work with the system day in
and day out – the Chief Finance Officers (CFOs) and HR Managers.
I found the HR reforms need less adjustment but recognise that they are still being
implemented with Performance Management being the biggest challenge. I recommend
persevering as the HR reforms will drive improved behaviours and outcomes across the civil
service.
In undertaking this Review, however, I discovered other matters that needed attention
which I believe have contributed to the current state of affairs. Much of my initial work
confirmed the many reports that have gone before but I have gone beyond these in
recommending that Governance and related weaknesses also be addressed.
During the course of my time on the Island, I was also asked to look at Procurement and
Comparative Economies. I make some recommendations regarding procurement but do so
in the knowledge that the Auditor General is also going over this same ground. As to
comparisons, my short survey of possibilities reveals the States of Jersey to be the nearest.
Not only that, but they have many of the simpler features that I recommend that Cayman
gets back to. I recommend a further short study to examine what the Public Finance Law
(2005) in Jersey can offer as a way forward.
In looking at IRIS i.e. the core accounting and information system, I found that while this
contributed to the difficulties in PMFL these were in many ways symptomatic of the wider
governance issues. I recommend that the management and appropriateness of IRIS for the
needs of the Government of the Cayman Islands be reviewed in a further short study.
But before upgrading or replacing IRIS the CIG should also review the complexity introduced
by accounting splits and the number of Entities / Agencies in existence. As part of radical
simplification I recommend a hard look at the costs and complexity these splits introduce.
Finally, I recommend a “Public Finance Programme” to implement this report and other
overlapping work in this area. The Public Service Reviews – which I endorse as a good thing
- demand the same resources. Further work will be needed to cost and flesh this
Programme out, but detailed plans can only be drawn up once my recommendations have
been accepted. I commend these recommendations to my sponsors and Cabinet.
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BACKGROUND AND INTRODUCTION
In 1997 the Government of the Cayman Islands embarked on an ambitious package of
financial and personnel reforms.
Still known as the “reform agenda” these were designed to bring about a culture of
improved performance across the whole of government:
- improved financial management
- improved transparency
- improved accountability
- an explicit focus on results
This was to be achieved through:
- Introducing a new, comprehensive method of budgeting and reporting
- Implementing accrual accounting and compliance with International Accounting
Standards
- Delegating and devolving responsibility for finance and human resources and
accountability to those managing the delivery of services, and
- The introduction of a number of HR measures including Performance
Management.
In short, this was a whole new way of doing business for the Government of the Cayman
Islands. These put the Cayman Islands Government in the vanguard of public sector
accounting and human resource management in the region and amongst the leaders
worldwide. Successful implementation of Financial Management Initiative (FMI) required
substantial changes in operations and financial reporting right across the entire public
sector. Together with their supporting Regulations, these changes have been enshrined in
the Public Management and Finance Law (PMFL) effective from July 1st 2004 and the Public
Service Management Law (PSML) effective from 2007.
THIS REVIEW
I have been asked to:
1 Examine if these reforms have met their strategic objective
2 Propose any amendments to the Laws, Regulations
3 Examine if the IRIS system is fit for purpose, and
4 Propose recommendations and an implementation plan
I was also asked to look at procurement as far as it was covered by PMFL. This final report
builds on a short, interim report to Cabinet and the discussion that followed. It benefits
from a further 5 working days research and analysis of the issues in my fourth week on the
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Islands, including two days examining the PMFL and PSML in detail and recommending
changes. These are attached in Appendices 2 & 3 respectively.
I then presented my draft interim report by the end of February / early March as my ToR
required. I have since amended this to produce this Final Report based on correspondence
and further research completed since my return. I have given serious consideration to the
comments I received and as a result have made significant changes in some places. It is
therefore fair to say that those recommendations that remain are the ones I firmly stand
behind.
During the course of this study I was asked to look briefly at Procurement as far as it was
covered by the respective Laws and Regulations. I have done so, but not in any great detail
as I became aware that the Auditor General is looking in reasonable detail at procurement.
I was also asked to consider comparative economies if possible. This has not proved
straightforward, despite basic desk research on the internet and discussions with others on
the Island. In short there are few if any comparative economies, though the Premier did
visit Jersey during February 2011, the month of this study. From all reports this would be a
system worth following up and I recommend that such a study is undertaken, comparing in
greater detail the Jersey and Cayman systems.
METHODOLOGY
I was able to read up on the issues and broadly familiarise myself with the system before
arriving in Cayman. I was sent some material, was pointed towards reports and comments
available on the internet and provided with copies of the Laws which supplemented my own
research.
I was able therefore to be briefed in greater detail in the first couple of days on arrival.
Broadly speaking, I spent the first week meeting with and interviewing civil servants and
those close to the core of Government.
My second week was focused on meeting and interviewing those outside this immediate
core. This included the private sector, Chief Executives of Government Owned companies
and those working in the agencies. I visited Cayman Brac and I met people who had asked
to see me following a press release that I was conducting this review. I saw members of
both parties during this week.
I took notes at all of these meetings and in a many cases typed these up. Some I sent to
those I had met asking them to confirm my typed record of the meeting. Throughout I was
looking to test and corroborate what others had said to me as time was too limited to
undertake much primary research of documents and records myself.
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I drafted my interim report to Cabinet at the beginning of the third week and spent time
testing and verifying this, including looking at my interim findings against material that
interviewees subsequently sent me. In some cases I went back to people to check. During
the third week I shared my emerging thoughts with the three sponsors of this report
(Governor, Deputy Governor and Premier). I also saw the Chair of the Public Accounts
Committee (PAC).
I began my fourth and final week with an early meeting with representatives of the Staff
Association. I completed my research, including seeing those who were off Island or had
such schedules that we had not been able to meet earlier. I also conducted two day-long
reviews of each of the Laws and Regulations (PMFL and PSML) to make the detailed
recommendations I had been asked for. These are attached in the Appendices 2 & 3.
I presented my interim report to Cabinet on the final Tuesday before writing this fuller
report on the back of a most helpful and detailed discussion. In finalising this report I have
tried to discuss it with others closer to the reforms in order to test my arguments.
Since returning from Cayman I have received comments on my draft final report from all my
sponsors as well as from the Auditor General and the Civil Service Staff Association. I also
received suggested drafting amendments. I entered into e-mail discussion on some points
and have undertaken a modest amount of further research, conscious of not exceeding my
authorised number of days too significantly.
This has necessitated some additional work, but I now present my final report.
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SUMMARY FINDINGS AND RECOMMENDATIONS
1 HAVE THE STRATEGIC OBJECTIVES BEEN MET?
The design of the reforms flowed from an in depth diagnosis of Cayman’s problem, and
while they include some features of the New Zealand system, were not simply transplanted
from there as some would suggest.
The “Cayman Model” was based around four design objectives:
1. Clarify roles; 2. Redefine performance to focus on results; 3. Establish effective accountability mechanisms; and 4. Develop stronger strategic processes linked to the budget.
In short, a performance management system with effective accountability linked to an
improved budget process.
Successful implementation in part, with less successful follow through since then
While the reforms were largely successfully implemented as intended, not all the early gains
have been sustained.
Particular difficulties were encountered (and remain) in implementing
- capital charges
- payment on delivery
- financial reporting,
- budgetary control,
- and inter-agency charging
There are a number of reasons for this. The lack of a clear Champion and sustained
leadership across the Chief Office team and lack of implementation support following
implementation did not help. Nor did Ivan: Much of the impetus of the financial reforms
was lost during Grand Cayman’s subsequent recovery.
The HR reforms have been more successful as there has been clearer ownership and
leadership. They also learnt from the implementation of the Finance reforms.
In summary, on the financial side:
- Accrual accounting has largely been embedded
o But not fully, and understanding is still low in some areas even amongst
senior managers
o And capital accounting still operates on a quasi-cash basis
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- Compliance with International Accounting Standards largely occurs but is
inconsistent
o Though there are areas where greater clarity and simplification would
help such as the interaction of the commercial standards (IFRS) with
those of the public sector (IPSAS)
I recommend in the detailed review of PMFL (attached at Appendix 2) that a
body be established to resolve these issues along the lines of the UK
Government’s Financial Reporting Advisory Board (FRAB) operated in the UK
under the auspices of HM Treasury. (Here it would be under the Financial
Secretary). This recommendation and the FRAB are discussed in more depth in
the Appendix.
- The Budget Process broadly works
o Though this has become cumbersome and lengthy and parts of it, such as
defining and costing outputs, are now treated in some quarters as merely
an exercise to be completed in order to get resources
o In some cases outputs cannot be costed either because data doesn’t
exist, meaningful data cannot be found, or it is difficult to directly link
costs to services. But it doesn’t reflect reality. As such variances are not
explained, nor sanctions imposed for non achievement
o The focus is on the short term and in-year. As I will discuss below,
strategic and economic planning remains an issue.
I therefore recommend a move away from detailed output budgeting and
reporting.
I recommend that the current budget cycle continues despite these
reservations.
In recommending a move away from detailed outputs, I fully recognise that this
is probably my most contentious recommendation, seen by some as going to the
heart of the current system.
If this does indeed prove a step too far (and this would need further discussion)
then, as an interim step, I would recommend that future management and
reporting is done on an output group basis not on individual outputs. This would
reduce the number of outputs from around 400 to some 230. I would further
recommend that the number of performance measures are similarly halved by
keeping quantity and cost but doing away with quality and timeliness.
In essence, this would halve the number of measures.
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- The Strategic Planning Phase needs to be more robust
I recommend below a stronger role for the Cabinet Office in this. Indeed, this
was envisaged in the original design. Cabinet Office did lead the process initially
but then didn’t sustain it.
- Concepts of Accountability and Responsibility are reasonably well understood
across the public sector
o But weaknesses in leadership and lack of management sanctions mean
that individuals are not really held to account
- The HR Reforms have been more successfully implemented
o But the lack of effective Performance Management and Appraisal remains
an issue
o Delegation remains patchy despite PSML requiring that HoDs be given
delegated responsibility
o Some Ministries still double-check and micro-manage which adds to
bureaucracy and reduces efficiency
Observations on the Public Sector Investment Committee (PSIC), Capital Appraisal and
Monitoring
It is also worth noting that in my detailed review of PMFL I discovered that the Public Sector
Investment Committee (PSIC) which should oversee Capital Project Appraisals for all
projects over CI$300,000, has never met despite being mandated in Part XII and Schedule 5
of the Financial Regulations
I draw attention to this as it is a key part of the Law which is not complied with. I therefore
recommend that this is reviewed.
It might be that the PSIC is no longer required, though I would caution against rushing to
this conclusion, or that its functions could be undertaken in a different manner. Given the
Cabinet’s focus on (value for money) vfm, some form of Investment Appraisal and challenge
of significant capital expenditure is certainly needed.
Much of this could take place in the Ministry of Finance under the Financial Secretary (who
should have access to the skills he needs, even if this means going outside the Civil Service).
Most organisations have some form of Capital Investment or Appraisal Committee. As part
of the Budget Process, Cabinet should approve a forward Capital Programme (covering
more than the immediate budget year).
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Given the size of the Capital Programme (circa CI$35m?) and the inefficiencies which occur
in dividing up capital budgets to smaller entities, I recommend instead that the Capital
Programme be managed centrally with the Cabinet approving all major new spend (subject
to the business case and an investment appraisal being presented) .
Cabinet would then monitor major spend via monthly reports, though once a project is
approved funds should be released (and transferred into the budget) for the relevant
Ministry to progress the project and report back on progress. Such a process would reduce
the need for a PSIC while making clear instead that Cabinet was responsible for the Capital
Programme – both approvals and monitoring.
But there are still no consolidated accounts, despite some recent progress in catching up at
Departmental level.
The most telling indictment of the reforms is the simple fact that the Government
(regardless of the party in power) has been unable to fulfil its legal duty to lay accounts in
the Legislative Assembly since the reforms were introduced. These missing individual
Departmental and Consolidated accounts date back in some cases to July 2003.
I detail the background to this state of affairs in Appendix 1. This reviews and summarises a
number of previous studies both internal and external into the operation of the Financial
and HR Management System conducted as part of my initial literature review.
The good news is that the accounts for Statutory Authorities & Government Owned
(SA&GC) companies appear to be catching up fastest. The National Roads Authority as an
example is now up to date. Though it remains unclear (at least to me) why the accounts for
SAs and GCs got into arrears in the first place as the reforms largely left things as they were.
During the latter days of my time in Cayman a significant number of annual reports were
laid before the Legislative Assembly, 15 reports in one day alone covering the financial years
2006-2008. Most of these reports though were disclaimed by the Auditor General who
stated that he was unable to verify completeness, accuracy or the valuation of the accounts
receivable, or that inadequate record keeping and stock taking meant he couldn’t verify
inventory, and that fixed assets (plant, equipment, and buildings) could not be verified as
belonging to the Government.
The process of laying prior year accounts has continued, it seems, since my departure
Internal, Management Accounts
It appears that civil service management do produce some internal financial management
information for their own use, though they are concerned about the reliability of this mainly
because of IT weaknesses which I discuss below.
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I caution against placing too much weight on these management accounts though given
wider weaknesses in the underlying systems.
Although my focus in this review has been on non-compliance with the law it remains
concerning that managers do not have good internal financial management information on
which to base decisions. Nor did I see much evidence of proactive use of non-financial data.
My understanding is that the Service Review Teams similarly struggled to get meaningful
performance data from entities.
The fact remains, however, that the absence of Consolidated Government accounts in an
economy that relies on its off-shore accounting and financial expertise is a serious failing.
2 AMENDMENTS TO LAWS AND REGULATIONS
The current model imposes significant overhead on the Civil Service and, to a lesser extent,
on wider public sector entities.
I recommend that this be addressed and simplified and have commented in the detailed
review of PMFL in Appendix 3 attached.
In short, too much is being asked of the budget and financial accountability system. Its
inability to deliver basic, audited Departmental and Consolidated Government Accounts is a
major indictment. A more proportional system that focuses effort on delivering these
fundamental, basic financial accounts is needed. Only then will Government be able to
report to its Citizens, and only then will the Legislative Assembly be able to hold the
Government to account. Such re-focusing will require a more pragmatic approach to the
more advanced management accounting techniques inherent in the current system, at least
to begin with. These can then be added in later if needed.
As such my principal recommendation is:
A rigorous and resolute focus on simplification, standardisation and burden reduction
Amongst other things, this will entail
- Except for the largest entities, some re-centralisation and re-standardisation of
(or compliance with) a number of financial and HR processes at Ministry &
Portfolio level as explained in the body of my report below
- A serious examination of how basic financial and HR transactions can be
processed centrally within Government rather than in almost every entity
(operational decision making should still remain at the Departmental level)
- Entities to work to simplified budgets as now, producing management accounts
(including forecasts) throughout the year (i.e. quarterly financials do not have to
be completed to an auditable standard). These simpler budget reports will need
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to be developed of course, but would be owned by the Portfolios and
consolidated by the Finance Ministry to monitor total Government spending
- All layers of Government to be held to account by scrutiny and challenge of their
annual financial accounts and written management commentaries. (Such reports
to be simplified, focusing on what the entity did with its resources, what it did or
did not manage to achieve and how these results contributed to the
Government’s longer term strategic objectives). This will require a programme
of faster year end closing which I recommend below.
It is note worthy that after a prolonged period of rigorous Management by Objectives
involving numerous detailed Key Performance e Indicators (KPIs) and Performance
Management across Departments, the incoming Coalition Government in the UK moved
rapidly to a far simpler system. This involves fewer, high level measures, broad
Departmental Objectives derived from the Coalition Agreement and far less detailed
reporting. Known as “Structural Reform Plans” an example for the UK’s Cabinet Office can
be seen at:
http://www.cabinetoffice.gov.uk/sites/default/files/resources/srp-cabinet-office_0.pdf
A similar system of high level, long term objectives exists in the States of Jersey which I
discuss below.
As stated above, this reform programme has embedded the concept of accountability but
struggles to deliver this through the disciplines currently in place. However, some 14 years
after the Reforms were first introduced and some 7 years since the new budget format went
live it would be time in any system to take stock, update and innovate. The recent Public
Service Reviews point to a way forward. Had the Financial Reforms been operating
effectively, it is arguable whether the level of savings and additional reviews identified in
these first two rounds would have emerged.
I therefore further recommend:
- Regular cycles of “peer” reviews of services and entities, along the lines of the
current Reviews of Public Services, and as part of these
- Internal and external benchmarking by those undertaking the reviews,
supervised by the centre to ensure consistency and validity of data.
- Also, that Internal Audit be invited to be a more integral part of the Service
Review process
As I’ve mentioned it, the Role of Internal Audit is worth exploring here as:
I found that internal audit was poorly directed and not well plugged into the wider Civil
Service. I therefore recommend that:
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- line management for Internal Audit (currently in the Ministry of Finance) be
reviewed and aligned with best practice as defined in International Internal Audit
Standards
- its reports go to an Audit Committee (which does not presently exist)
- this Audit Committee be chaired by someone who is neither a politician nor a
public servant
- the annual internal audit plan and an annual report summarising the findings
throughout the year be presented to Cabinet with recommendations for action
And that the Internal Audit Service is not expected to cover the four Government
Companies, whose Boards should ensure that such a function should be carried out. This
may be by a private firm, or by buying surplus or additional capacity from the Government
Internal Audit Service if they so wish.
The Role of External Audit
While discussing Audit, I should report that the current catching up arrangements place a
considerable burden on the Auditor General and his office. In dealing with accounts from
the last 5 years a backlog has developed. All of the Turtle Farm accounts, for example, for
the last 4 years have been signed off by the Auditor General in the last 6 months. In the last
year his office have cleared some 100 sets of accounts when in reality this should be running
at 38 a year (still a significant number though for an economy of this size). In terms of the
Consolidated Accounts of Government however, the Auditor General has only received an
incomplete submission for 2004/05 so far.
During my interviews and research I heard various accounts of how this backlog was
affecting the relationship between SA & GCs and the Office of the Auditor General. I
conclude that this relationship is an improving one, having reached a low point during the
previous incumbent’s tenure. I put the improvement down to better communications and a
pragmatic approach by the current Auditor General who is highly regarded.
I also heard pleas that the external accounting firms could be used better. In subsequent
correspondence with the Auditor General on my return, I have satisfied myself that the
Auditor General is addressing this point. He has inherited contractual arrangements with
firms that preceded his arrival and which were not established through his Office despite
this being a PMFL requirement. This throws up a number of issues and the AG is keen to
maintain quality control. In doing so, I am satisfied that he takes size, risk and related
factors into account. Indeed, such Quality Control Reviews (QCRs) by the AG are becoming
more risk based.
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If the Office of the Auditor General (OAG) were working with fewer firms (say 2 rather than
the current 5) this would facilitate matters as the OAG would only need rely on the internal
public sector quality control arrangements of fewer firms before considering his sign-off.
In the light of this correspondence with the Auditor General I have modified the
recommendations in my initial draft of this final report.
The Way Forward
In looking at the reforms now needed to the Laws (PMFL and PSML) the following General
Principles apply:
I recommend that the Government
- Resolutely simplify. The Legal, Regulatory, financial and managerial controls
must be proportionate to the size, complexity and risks of the entity being
controlled. In general, a one size fits all approach is adopted:
o For smaller, simpler entities straightforward grants and letters of
understanding or similar high-level, reduced documentation will
suffice (for financial and budgetary control).
o For larger and / or more complex entities fully detailed Purchase and
Ownership Agreements may indeed be suitable.
- The test is what is proportionate to the risk and sums being managed. Get the
wheels turning again by getting back to something that works. The current
arrangements are not working. Recognising this and deciding that something
simpler is better than a fully coherent model which is not working in practice has
to be right. This will be challenging for those who worked long and hard to
implement the reforms. Once the cogs are meshing together again, then greater
sophistication can be re-introduced – but gradually.
- Broadly centralise and stabilise Finance & HR delegations within the Civil Service
at Portfolio level except for the larger, more complex or riskier Statutory
Agencies – such as Health, Education and Policing. These could become “centres
of expertise” largely because of their scale, leaving the remaining smaller and /
or less complex entities to be serviced from “centres of excellence” within the
Portfolio.
- The recommendation to resolutely simplify supports the need to review the
number of entities being managed across the system, indeed it is probably an
early task before more fundamental changes to the system. Every separation
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and boundary introduces cost and complexity. These disadvantages must not
outweigh the advantages of creating a separate unit. I therefore recommend
that a review is undertaken with the aim of reducing the number of entities
(especially agencies) operating in the Caymans. Some could be merged,
abolished or re-absorbed back into the parent Department. I understand it could
be some 15 years since many of these were set up without being reviewed since.
During my Review I was asked for thoughts on which agencies could be merged
or combined. I would not be able to do justice to this complex and sensitive
issue in my allotted time, but I would be willing to look at this as part of any
further phase of work. For those entities which remain, determine to what
extent the HR and Financial Transactions can be processed centrally rather than
within the entity itself. Decision making and budgetary control would remain
with the agency, but the administration of basic processes would be done
centrally to maximise economies of scale and functional expertise.
- Allow Government Companies to operate under their controlling Boards who
must be held accountable for their performance including reporting at least
annually to their respective Minister. I recommend this be to brief the Minister
on their Annual Financial Report and Management Commentary when it is
produced (as currently provided in the PMFL but not operating in practice -
which puts the supervising Minister in a difficult position). A further opportunity
is when the Minister sets (or revises) their financial targets which s/he sets in the
context of a (simplified) Ownership Agreement I recommend that it is clarified
that Government Companies are not subject to the PMFL and PSML. This again is
the current intention of the Laws, but is not happening consistently in practice.
Instead the finance and HR procedures of Government Companies should be
defined by their respective Boards. In the absence of any, PMFL and PSML can
be used as a template. Other national laws, such as the Labour Law will of
course apply.
- Alongside the financial accounts, adopt narrative reporting (rather than output
variance statements) as a simpler method of accountability for resources
consumed and progress toward outcomes (i.e. use the management
commentary / narrative reporting to explain achievements and shortfalls). I
discuss Narrative Reporting in greater detail in Appendix 2 where I have included
links to further material on the internet.
In this respect, the Cabinet’s recent approach has been correct and I support those
measures taken to lighten the burden including
- Suspension of Inter Agency Charging (though the poor behaviours and greater
demand management that seem to have occurred since suspension will need to
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be addressed by other means such as exception reporting, league tables of
usage, other management control information, escalation of authority for certain
services or similar devices)
- Suspension of Quarterly Reporting and, the recent
- Decision to produce only Annual Ministry & Portfolio Accounts and Consolidated
Entire Public Sector Accounts for previous and future years (the missing accounts
can be completed under best efforts once the current baseline has been
established)
In time, some aspects of the reform programme could be re-introduced particularly for the
larger, more complex or riskier Departments and Entities.
This would include further delegation and the limited re-introduction of inter-agency
charging in order to record the full costs of functions in order to fully comply with the Public
Accounting Standards, IPSAS. Until then, traditional accounting allocation methods can be
used to comply with external reporting requirements.
Any new inter-agency charging should be done on a materiality basis (i.e. only the big,
significant and riskier items) and through automated accounting transactions, not hard
invoicing and posting cheques between entities.
On Budgeting the same recommendation applies – resolutely simplify (and shorten the
timetable).
The current process is lengthy, time-consuming and not producing realistic budgets for
Departments to work to as expenditure is cut but outputs must be maintained – the
opposite of what the Financial Management reforms promised. But then this is the first
time that they have been operated in an economic down turn and (under financial pressure)
a number of chief officers and chief executives have reverted to focussing only on managing
against their cash limits
The current system produces over 2000 pages of information and while the Annual Plan and
Estimate (APE) is the key document, the process needs to be better led and controlled.
Again it needs to be simplified. This also points to more fundamental weaknesses in pre-
budget strategic planning and economic forecasting as discussed below.
On HR/Personnel Reforms I have far fewer recommendations. Those that I have relate to
improving Performance Management but require more fundamental behavioural change in
the civil service and politicians before they will succeed. These are discussed below with
some detailed recommendations contained within Appendix 3 (Detailed Review of PMSL).
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My principal recommendation in respect of the PSML is to continue embedding and
supporting the reforms. Once the correct behaviours are established, capability will follow
and all other reforms have greater chance of success, including those on the Finance side
Since leaving the Island, I received a detailed submission from the Cayman Islands Civil
Service Association (CISCA). I have been given permission to include this in my report and
do so as an attachment at Appendix 4.
CISCA’s submission covers nine topics over 5 pages. The first three topics, Succession
Planning, Performance Agreements and Discipline I am satisfied that I have addressed
sufficiently in my detailed review of the PSML at Appendix 3. Many of my recommendations
align with suggestions in CISCA’s submission.
As to the remaining six topics, I leave these as areas of finer detail for others to consider. I
know, for example, that the Portfolio of the Civil Service (POCS) was considering the matter
of Political Appointments (CISCA’s fourth item). Although I had some informal
conversations with those reviewing the area (mainly comparing how these are treated in
the UK) I have not made recommendations in this area as I consider it to be peripheral to
my core Terms of Reference.
I am sympathetic, however, to many of CISCA’s suggestions. In recommending 360 degree
feedback in Appraisals for example (under HR Standards) CISCA have gone further than I
have done at this time. My recommendation is to see Performance Agreements and
Appraisals fully implemented first before refining with 360 degree feedback, though use of
this would be my next recommended step, despite what I expect would be a challenge to
implement it.
Under the heading of Training & Development, the use of Investors in People as a
framework is also something I would endorse is used in due course.
On Procurement I am aware that the Auditor General is examining this whole area, as I have
said, as well as some specific areas of concern as part of the wider study. I therefore offer
the following, independent advice pending his review.
I found the current processes and procedures to be broadly sound though improvements
can be made to enhance governance, improve behaviours and ensure better value for
money (vfm).
What is clearly apparent though is that the Government now lacks central Procurement
Expertise. I recommend that some expertise is re-established (its exact reporting line to be
determined). This small unit (even one person) would
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- provide advice on major procurement exercises
- ensure all those that need to be aware of these procurements do so, including
Ministers and, where necessary, the Cabinet (e.g. large, novel, contentious,
complex or riskier exercises)
- advise on these large, novel, contentious or complex or riskier procurements
outside of officials’ normal expertise, and
- ensure that good procurement practice is followed
I further recommend that the
- Procurement Specialist is the secretary to the Central Tenders Committee (CTC),
and that
- the CTC is chaired by someone sufficiently vetted and independent of
Government (officials or politicians)
The Procurement specialist should also be up to date on the agenda and deliberations of the
PSIC or its equivalent (though not a member of that committee).
The CTC itself is a form of arms length body that I have not seen before. It has existed for
over 20 years and its role has been expanded from Core Government to cover all SAs and
GCs.
Two of the Government Companies I spoke to reported that the CTC doesn’t understand
their businesses and can’t respond quickly enough to some of their commercial needs.
The CTC’s role is to “oversee the tender process…to ensure it is carried out fairly,
consistently, ethically, transparently, within process guidelines and in accordance with
Cayman Islands Law”. This seems to me to be an “audit” process. As such I initially
considered whether this function should not sit more appropriately within the Audit world.
However, in correspondence and through other feedback received on my interim final
report during March I have been persuaded that the CTC is a unique feature of the
management control framework in a small island economy which should remain under
(executive) management’s control.
I therefore recommend that the Auditor General be asked annually to provide assurance on
the operation of this unique managerial control. I also recommend that the extension of the
CTC to oversee the four Government Owned Companies be re-examined both for purchases
and disposals. I would recommend that correct and proper purchasing and disposal be a
matter for these four organisations’ Boards (and subject to audit by the Auditor General).
For the purposes of clarity, I don’t recommend any changes to the scope of the CTC in
respect of Government Agencies, only Companies.
In further considering the CTC and its role, I have concluded and recommend that:
21
1. the requirements and discipline of the CTC be better defined within the PMFL. (I
have noted that these don’t appear in the PMFL and have made a note at the foot of
Appendix 2 to this effect);
2. the Governor’s Office make appointments; and
3. public servants are only allowed to be members in defined ex-officio roles (such as
from the Finance Portfolio, and even then from pre-defined roles with limited
powers to delegate attendance).
3 THE IRIS SYSTEM
I had not been able to establish how much the Oracle (IRIS) system costs to run, though
anecdotally this is believed to be significant. As a Government Department there is no
Purchase Agreement for Computer Services, though I have since been informed that its
outputs are costed under CSD 27, 34, 36, 37 & 38 of the Budget Book.
However, I can report that as currently operated IRIS does not support the Financial
Management Reforms.
I also have a question over whether it is the correct system, but this remains something for
the longer term (as discussed below).
In short, I have discovered a basic lack of functional ownership of the system. Computer
Services run the application but they are not directed nor challenged by a Finance Owner.
In many respects, the recommendations in this area are clearer as they don’t involve
changes to behaviours and culture.
In order to improve IRIS as the fundamental system underpinning PMFL & PMSL I
recommend:
- Re-establishment of the Chief Officer (Public Finance) as the clear functional
owner (though she may, of course, delegate to a post reporting to her but I
would argue no lower)
- That the Chief Officer has at least two business analysts who can specify the
business’ requirements. (No financial staff / accountants exist in the remaining
team of four working on IRIS – down from ten only two or three years ago).
- That the Chief Officer (Public Finance) determines the priorities for IRIS
improvements and works to simplify and standardise reporting under the
fundamental “rigorous simplification” recommendation
- As a priority the “funds available” report needs attention and there should be a
better ability to download data from trial balances into Excel
I further recommend (subject to identification of funding and an approved business case):
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- Upgrading IRIS (i.e. the underlying Oracle system) to a more current version. It is
some two versions behind
- Implementing Oracle’s Hyperion Reporting tool (which can also be used for
budgeting)
- A review of whether IRIS / Oracle is really the most cost effective tool to use in
an organisation of this size. (Some 4 weeks should be allowed for the initial
study, using external expertise. Again, I would be willing to assist as an advisor)
And in the longer term when “rigorous simplification” has begun to take effect:
- Whether the IRIS team itself would better report to the Finance Ministry, and
- What role the private sector could have in maintaining the system
4 RECOMMENDATIONS AND IMPLEMENTATION PLANNING
These recommendations will require resourcing as described in outline below and in greater
detail in Appendices 7 through 10, but in turn I expect them to lead to savings. Such savings
will occur in the reduction of accounting staff, improvement in efficiency and reduction in
complexity. I recommend that these should be costed, and a business case made. But
there remains both an opportunity and a prize which is less quantifiable.
The Opportunity is to complete a consolidated set of accounts for Core Government and, in
due course, the Entire Public Sector, for this 10/11 financial year. At the time I left the
Islands there were still 4 months left to the end of this FY in which to prepare the reporting
plan, confirm the fixed asset and balance sheet figures, resolve inter-agency charges and
direct the work of the Chief Officers and their CFOs. But it will take leadership and will
require someone who has the accounting expertise, previous experience, and determination
to drive this through in order to meet the Auditing deadlines 2 and 4 months after the Year
End. In any subsequent work completing a good set of government-level financial accounts
for the current financial year will be essential. Any move to another system will be delayed
or frustrated until this is achieved.
Close working with the Auditor General and clear support from the Cabinet and top of the
Civil Service will also be needed.
The Prize is re-establishment of the Government’s reputation, the first set of accounts
(probably qualified) since the reforms were introduced and a clear sign to citizens and those
working in the private sector that the Government is capable of doing its accounts. Output
statements need not be produced, but written reports of activity and achievements (as
recommended above) will be essential. These written, narrative statements need not be
audited except for the most significant metrics described within them in line with current
external audit requirements of such Management Letters
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I strongly argue that this is an investment worth making. I would also expect it to improve
the morale and confidence of public servants.
To deliver this Faster Final Accounts exercise (and make progress on my other
recommendations while there now is some momentum for change) I recommend:
- Clear political support from the Cabinet and Minister of Finance
- A clear internal champion within the senior civil service (i.e. the Financial
Secretary)
- A strong steering committee
- A dedicated Project Manager
- Establishment of a small project office (to ensure deadlines are met, issues
escalated and to track costs and benefits)
- Linkages to wider change programme under way (e.g. implementation of the
Service Reviews)
Indeed, a wider recommendation is that FMI and Service Reviews be treated as a single
improvement programme. The longer term need for these change / support functions will
itself have to be assessed once the first set of Core Government and Entire Public Sector
Accounts have been produced. Without coordination of resources and clear prioritisation
of activities finance and other staff working on the reforms, reviews and other projects will
be pulling in different directions and working to different timescales. Additionally, the in-
house skills will need to be blended with some specialist skills brought in from outside and
possibly for extended periods. These potentially conflicting needs will need co-ordination
by a Programme Manager supported by a capable Programme Office(r).
As with any significant change programme risks will need to be identified and mitigated or
managed.
A communications capacity will also be required.
As part of establishing the Project Plan, the Project Manager and team will need to
- Mandate a hard close for all significant entities, for example at Month 9 (i.e. 31st
March 2011 and successive years). Though I appreciate that the final version of
this report arrives after the 31st March, such a hard close for significant entities
should still be a possibility. Work done now will reduce the work required in 3 to
4 months time and issues can be resolved without the same absolute deadlines a
year end close imposes
- Ensure Fixed Asset records are correct and updated
- Ensure other Balance Sheet items are also updated (e.g. liabilities)
- Resolve outstanding inter-agency transaction issues
- Work with the Auditor General to bring some of his year end audit work forward
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It is also worth correcting a widespread misunderstanding that Core Government and EPS
Consolidations cannot begin until the entity accounts are audited. This is not the case.
Consolidation should occur as soon as any account are available and material adjustments
made later in a controlled manner (agreed with the Auditor General if necessary or late in
his audit).
BROADER OBSERVATIONS
In essence, the above meets the requirements on the face of the Terms of Reference. But in
the course of the past month I have had the benefit of being able to look at the organisation
with a fresh pair of eyes.
The troubling question is
How has all this happened and why has it not been fixed before?
To answer why success has fallen short of expectations it helps to understand some of the
key, underlying assumptions (and therefore potential weaknesses) of the FMI model:
The process of linking budgets, appropriations and payments to outputs fundamentally
assumes:
- That all costs are variable up and down over the short term
o i.e. that staff numbers, pay, property costs, contracts and other inputs are
easily varied and in direct proportion to outputs. Clearly many of these
inputs are semi-fixed and cannot be varied at short notice or do not
directly vary but rather do so in significant chunks or steps. Past
experience in the Cayman has also shown that it is easier to increase
rather than decrease inputs – e.g. take on additional people to fulfil
additional tasks rather than reallocate existing resources
- That Government should operate as a business
o Which is different from operating in a “business-like” way
- That the Government should always operate a surplus
o Keynesian theory would argue that Governments should operate counter
to the economic cycle – building reserves and paying down debt in the
better times, so that it can stimulate the economy and even run deficits
when times are harder.
o Of course the UK’s FCO and HM Treasury are unlikely to agree to a
negative or unbalanced budget. That is not to say that a Contingency
Reserve should not be built up in future
25
(The Miller Report also argues for a contingency fund so that the Government can spend
counter-cyclically to the economic cycle. Such a “Stabilisation Fund” does exist in Jersey and
is being put to good use during the current downturn to stimulate the island’s economy).
And a couple of practical issues
- A model of this complexity requires additional IT and capable people with the
necessary leadership, experience and governance to operate it
- Every subdivision of Government into smaller entities increases the potential
number of transactions within and across Government exponentially and
therefore the complexity
Under the process of “rigorous simplification”, of course, one should ask if all these agencies
and entities are all really needed. Are there consolidations that could be achieved?
Indeed, as above, I recommend above a review to confirm that all these entities really are
required, and that greater synergies cannot be found (as well as savings) by combining a
number of them. The incoming UK Coalition Government undertook just such a review in a
relatively short period of time. Its criteria and methodology could be adapted for the
Cayman, or at least used as a starting point. A UK Written Ministerial Statement can be
found at:
http://www.cabinetoffice.gov.uk/sites/default/files/resources/wms-gov-response-pasc.pdf
It is also striking that a number of reviews of PMFL have been conducted. These were
mainly internal reviews which didn’t solve the fundamental lack of accounts. Government
has therefore been confronted with increasing external criticism. This has come from the
Auditor General’s Office, the PAC and Assembly, the private sector and from the wider
public.
Cabinet has therefore embarked on a process of simplification and scaling back. As I have
said above, in this respect, Cabinet’s instincts have been correct. The model imposes
significant burden on a Government of this scale and capacity. I have commented above on
the impact that this has had on the financial capacity and capabilities alone.
Measures to lighten this burden so far to date include
- Establishment of an Accounting Task Force
- Suspension of Inter Agency Charging
- Suspension of Quarterly Reporting and, at the beginning of this month,
- Decisions to produce only Annual Ministry & Portfolio Accounts and Consolidated
Entire Public Sector Accounts for previous and future years
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This is a start. But I would argue that this is only the first of three reasons why the reforms
have not succeeded
1. Overall burden and complexity
2. Governance and organisational weaknesses
3. Lack of clarity of roles
1 Burden and complexity
I will not say much more except that I have not explicitly examined the skills and capabilities
of the finance staff though some interviewees raised this as a potential issue with me. Such
an examination could be done, but it did not seem a productive use of my time.
As with any group I am sure that there is a distribution of abilities and experience. What is
obvious is that the complexity of the current system requires finance staff with higher order,
more expensive skills. As such qualified CFOs have been hired over recent years in
increasing numbers. This is a natural and correct response, but there is some evidence that
the CFOs are drawn into detailed transactions as more junior staff struggle and therefore
that their strategic / advisory role is more limited as will be the time that they have to
advise non-finance colleagues on decisions with significant financial implications.
2 Governance and organisational weaknesses
I have observed a lack of clarity in leadership of financial management at the heart of
Government. This is not what had been intended in recent constitutional changes but it has
resulted in no one person clearly stepping up to take ownership and set direction.
Cabinet carries collective responsibility for the financial affairs, no longer the Governor and
therefore by deduction (though not explicitly) no longer, it seems through the Deputy
Governor.
Instead the Minister of Finance leads. While this is an elected position in Cabinet the
regional practice of combining this role with that of the Premier and other functions, in
Cayman’s case, Tourism and Development means that the bandwidth of the Finance
Minister’s time to devote to technical finance issues will be limited.
There needs, in any event, to be a clear senior Civil Servant lead. This looks like the Financial
Secretary, though the constitutional changes have led to some uncertainty over how much
responsibility this “senior financial adviser” should really assume, especially as there are
also two financial Chief Officers (of the three in total) in the Ministry of Finance. The Chief
Officer (Public Finance) is currently the appropriate lead in my view.
27
In any event, this uncertainty has created weaknesses in leadership at the heart of
Government.
I recommend that this is resolved. The intention in drawing up the new constitution was
not clearly stated, but it seems that the working assumption was that the Financial
Secretary would be the Chief Officer with responsibility to lead the Finance Function across
Government. (Section 115) This would provide a saving in one senior post which would be
available to strengthen this function.
In this role I further recommend that the Financial Secretary be given a “first amongst
equals” role over his/her other Chief Officer colleagues on matters financial. This would be
as the Permanent Secretary in the UK Government’s Treasury has over his other Permanent
Secretary colleagues. The term Financial Secretary implies the right degree of seniority so I
recommend that the title be retained.
I further recommend that the CFOs have a professional (sometimes called a “dotted line”)
reporting responsibility to the Financial Secretary who would be the Caymanian Head of
Government Accounting Profession. In this role s/he would provide input into the CFO’s
performance Agreement and Appraisals, be involved (or represented) in their recruitment
process, and be responsible for the professional development of the finance community
across Government. It almost goes without saying, therefore, that this person should be a
Qualified Accountant.
It is essential, however, that CFOs remain firmly embedded in the Ministries and Portfolio
and part of the Chief Officer’s management team. (The alternative is that CFOs are
embedded but have a firm reporting line to the Financial Secretary and only a dotted line to
the Chief Officer. This is a more dramatic organisational change which I do not recommend
at this stage, but one which should be held in reserve in case financial disciplines do not
improve in the next year).
Similarly, I recommend that CFOs have a dotted reporting line over the Departmental
Accountants, be involved in their recruitment, input to their Performance Appraisal and
assist with their professional development. While there is some evidence that this is
happening through custom and practice, it needs to be formalised and recognised as part of
the CFOs role.
It is commendable that no papers or policy proposals go to Cabinet that have not been
through the Financial Secretary (in practice his/her Department) so that all financial
implications and risks are signed off by or on behalf of the Financial Secretary. However, I
recommend that the Financial Secretary draw on the widest possible advice, not all of which
will necessarily be found in the Ministry of Finance.
I have also been concerned at the ability to forecast with any accuracy the forward long-
term macro-economic position of the economy and to provide high level advice to Cabinet
28
on significant financial issues. An advisor does exist but at too junior a level in the Public
Finance Division in a role that is combined with the Statistics Office.
I therefore recommend an Economics Office be established under a suitably qualified and
senior economist reporting to the Financial Secretary. I further recommend that the impact
of this role on the Economic & Statistical Office be considered. Indeed, I pose the thought
that this could become an independent Statistics Office in line with many other developed
economies.
There are a number of other areas where senior civil service leadership needs to be
strengthened. In doing so the environment for the successful implementation of further
reforms (i.e. simplification) will be enhanced.
Firstly, the Ministries and Portfolio work in silos, best described by one interviewee as “14
or 15 mini Governments”. It is important that the civil service operates as one team in
implementing the policies of the Government of the day that it serves.
I recommend that the Chief Officers meet together at least monthly as a Chief Officer Team
(and even that a “core team” of say the Deputy Governor, Financial Secretary, Cabinet
Secretary and Chief Officers of Public Finance (where this still exists), Portfolio of the Civil
Service (if filled) and probably Internal & External Affairs meet weekly). This would be under
the chairmanship and leadership of the Head of the Civil Service / Deputy Governor to deal
with cross cutting issues (such as finances, the budget, performance appraisals, reductions
in core civil service strength and so forth), to develop a cross-Government sense of common
purpose, but above all to provide – and communicate – leadership to the rest of the Civil
Service. In due course, it would be my hope that this meeting becomes the Management
Board for the Civil Service, dealing with operational matters needed to run the executive
side of Government. Chief Officers should have a clear Leadership Development
Programme (as should happen under the present Performance Agreement) and do like-wise
for their Deputies. In this way the capability of the Civil Service to lead and innovate will
strengthen over time and the Service will re-establish itself as a core driver in Cayman’s
success story.
Secondly, in mentioning communications it is apparent that opportunities to communicate
with all civil servants need strengthening. In today’s connected, intranet world
opportunities seem to be missed to message out regularly and consistently. I therefore
further recommend that the Chief Officer Team put in place a Civil Service wide
communications process and that regular retreats take place with the full Cabinet in order
to build the sense of team and common purpose across and at the top of Government.
Thirdly, I recommend that Cabinet processes would benefit from strengthening, including
establishing a rolling annual work plan for the Cabinet itself – i.e. what issues will be taken
29
when? This will allow better forward planning of papers and wider consultation across the
civil service on implications.
I have already recommended that all papers have the financial implications spelt out by the
Finance Secretary, but the process for sharing drafts and commenting on proposals (nearly
all of which will have financial implications) seems weak. There is scope for the Chief Officer
Team meeting to discuss forthcoming papers to provide a more rounded Government-wide
view or to spell out to Cabinet where differences of opinion exist.
The Cabinet Office should be capable of performing a greater strategic role through policy
co-ordination and as a centre of policy innovation. It not only needs to co-ordinated work
going to the Cabinet, bringing together and reporting back on Cabinet meetings but its work
in overseeing the Cabinet’s policy implementation also needs strengthening.
In due course, the CIG may wish to follow the UK model in having the Minister chair a
quarterly Strategy Board in which the financial and operational highlights of the Portfolio
are examined.
3 Lack of clarity of roles
One of the hardest challenges in even the best run parliamentary democracies is to maintain
the proper boundary between the elected politicians and permanent civil service. i.e. for
the civil servants to carry out the wishes of the elected representatives and for those
elected to allow the civil servants to manage the day to day operations. Robust safeguards
exist in Cayman’s Constitution, Laws (and Regulations) to ensure that all parties do the right
thing, and are therefore protected from criticism.
There are a number of cultural challenges in implementing a Performance Management and
Appraisal system on a small island where people have grown up and worked together but I
am convinced it is possible. This will only happen if Civil Servants follow the procedures and
Politicians back them in taking tough decisions. Trust is needed on both sides if this is to
succeed.
It is what people actually do (rather than what they say or instruct) that has the most
powerful impact on shaping the culture or defining “how we do things round here”.
Examples or anecdotes of procedures not being followed can be hugely corrosive.
Chief Officers were also completing their budget submissions as I wrote my draft final report
in March. The fundamental idea of the FMI Reforms that reduced budget inputs would
result in reduced outputs does not receive political support in an economic downturn.
30
This is understandable but it comes back to one of the key theoretical weaknesses in the
reforms, described above, that inputs are not as elastic as the model assumes. While
budgets were expanding (i.e. inputs increasing) the true relationship between input and
outputs was not being tested. The crunch comes when times are hard.
Chief Officers are being asked to maintain outputs while decreasing input costs. Many are
looking to staff reductions only as a last resort, though staffing costs can make up almost
80% of many budgets. The four Government Companies have been more successful in
right-sizing the workforce. A clearer strategy on right sizing Core Government functions
would help the budget process.
In theory this should be resolved by the Strategic Policy Process (defined in the PMFL).
While this worked successfully in the early years its usefulness appears to have declined,
despite the need for clear Policy Priorities never being greater.
The Cabinet has it seems commendably addressed this sensitive issue but the feedback I
received is that senior managers have not had a clear communication on the Cabinet’s
wishes. This can be rectified. I expect my recommendations on Chief Officers’ meeting and
the co-ordinating role of the Cabinet Office and to go a long way to addressing these issues.
However, communication is always a challenge and I recommend that Cabinet should
consider how best it messages out its decisions or what is on its agenda.
COMPARATIVE ECONOMIES
During the course of my Review, I was asked to consider if there were comparative
economies or jurisdictions which the Cayman Islands could learn from in terms of Public
Finance Law. A number of small, island, offshore or financial service-based were therefore
considered. Although not spending a significant amount of time on the topic it quickly
became apparent that there are few analogue jurisdictions. This was the challenge that the
Miller Review also ran up against and, to some extent, was criticised for.
The remainder of the Caribbean is an obvious place to consider, but most quickly rule
themselves out as still being cash or quasi-cash based with lower GDP per capita and
different governance structures.
Bermuda is probably the closest neighbouring island. It still uses J D Edwards Software. This
has been bought out by Oracle. A small study of Bermuda and questioning of Oracle
therefore may be worthwhile.
Other Island economies such as Hong Kong or Singapore were considered and discussed, but
their economies are far larger and broader.
31
Attention turned to other offshore centres nearer the UK. The Isle of Man is a possible
comparator, but quickly it became clear that The States of Jersey is the most promising.
Jersey has a broader economic base than Cayman and relies on some direct taxation.
Nevertheless, its Government Expenditure is of a similar order. In 2005 it implemented a
new Public Finance Law and it has (as already noted in this report) established a
Stabilisation Reserve which it is using to stimulate the economy during the current
downturn.
While the fieldwork for this Review was being undertaken the Premier visited Jersey and
declared that it had much to offer as a comparator. Desk based research confirms this to be
the case: much can be found on the States of Jersey website (www.gov.je).
It has one instance of its General Ledger and has what appears to be a simpler, more
strategic budgeting and planning system. It is notable for example that Jersey’s Budget
Report is only 69 pages long. Much as discussed elsewhere in this report Jersey’s model is
similar to that now in use in the UK in reporting progress against broad objectives.
I therefore recommend a short follow up study to Jersey, and have built this into the Outline
Implementation Plan in Appendix 8.
There is nothing like a short visit to get a better understanding of the comparative
advantages and disadvantages of their Public Finance Law (2005). The costs and time
involved would be modest, yet the return potentially significant for such an investment.
I had hoped that such a visit could have taken place in late March as the sooner the Jersey
model is understood, the sooner it could contribute to define the simplified way forward.
My understanding though is that this has not happened. If it helps, (given my proximity
from the UK) I am willing to join in or undertake a short fact finding visit and compile a
report.
CONCLUSION, NEXT STEPS AND ACTION PLAN
As discussed in my preamble, this final report is submitted in fulfilment of my Terms of
Reference.
In concluding I note that I have commented on some broader issues which I believe explain
why change following previous reports has been so difficult or ineffective.
I also believe, however, that my arrival as someone not previously connected with the
Cayman Islands has been part of the beginning of the reforms that now need to happen. I
detected a real desire for change from all those I have seen or been contacted by.
32
Having built this momentum it needs to continue so in this final report I have added more
about implementation and included four additional Appendices (7 through 10). The first of
these outlines the approach needed to implementing changes of this scale. The second
sketches out the steps which now need to be taken in the order they should be taken,
together with brief comments on resource implications. To do more on future costings and
detail would be the subject of considerably more work. Realistically this can only be
undertaken once the recommended direction of travel has been agreed.
Nevertheless, given my stress on closing this year’s accounts as the priority, I include an
example of the project plan / timetable needed to drive this activity at Appendix 9.
Finally, my fourth additional appendix (Appendix 10) sketches out the Governance structure
needed to lead and deliver what I refer to there as the “Public Finance Programme”. I do
not underestimate some of the challenges and work needed.
Resourcing will always be a challenge as will prioritisation of these recommendations. Some
can be completed more quickly than others. But as I have said, Faster Financial Accounts
closure this year has to be the priority.
I have therefore recommended establishing a team immediately to prepare for the accounts
closure for this financial year end and that this is combined with other changes that in all
probability the Public Service Reviews will bring about.
ACKNOWLEDGEMENTS
In closing this report, I must thank all those who assisted in this Review. A list of those
interviewed is included at Appendix 13. I thank you all. As mentioned there was a great
willingness by all of you and many others on the Island to give of their time and their views.
I must of course particularly thank my three sponsors: His Excellency The Governor, The
Premier and The Deputy Governor for inviting me to visit the Cayman and undertake this
study in the first place.
I thank the staff and management of the Marriott and those living and working on the
Cayman for making my stay during February such a wonderful and memorable experience.
And a special mention must go to those I worked most closely with, Ian Fenton and Peter
Gough (who was an incredible mentor and friend during this project). Also to Matthew
Tibbetts for organising the CFO Forum and others in PoCS who organised the HR Forum.
Finally, a special thank you to Jackie, also in PoCS who volunteered to help arrange my
interviews, deal with my office arrangements and generally take care of me and the admin.
33
I thank you all for your help and kindness.
Keith Luck FMI (PFML/PSML) Consultant
April 2011
34
APPENDICES Page
APPENDIX 1 - Review of Previous Studies and Reports 35
APPENDIX 2 - Detailed Review of PMFL 44
APPENDIX 3 - Detailed Review of PSML 58
APPENDIX 4 - Commentary on the Review of the PMSL from CISCA 64
APPENDIX 5 - Recommendations and Ideas arising from the HR Forum 71
APPENDIX 6 - Recommendations and Ideas arising from the CFO Forum 78
APPENDIX 7 - Implementing the Changes: An Approach and Overview 86
APPENDIX 8 - An Outline Implementation Plan 88
APPENDIX 9 - A Project Plan for Closing the 2010/11 Accounts 93
APPENDIX 10 - The Public Finance Programme: Suggested Governance Structure 105
APPENDIX 11 - Terms of Reference 107
APPENDIX 12 - Bibliography and References 110
APPENDIX 13 - List of those Groups and Individuals Interviewed 111
APPENDIX 14 - Selected Glossary 114
APPENDIX 15 - About the Author 115
35
APPENDIX 1
REVIEW OF THE FINANCIAL AND HUMAN RESOURCE MANAGEMENT SYSTEM OPERATED BY
THE CAYMAN ISLANDS GOVERNMENT
REVIEW OF PREVIOUS STUDIES AND REPORTS
[1] Special Report of the Auditor General on the State of Financial Accountability Reporting
April 2008
1997: Financial Management Initiative (FMI) – led to “reforms” and ultimately the Public
Management and Finance Law (PMFL) effective f/y July 1st 2004
New method of budgeting and reporting including, most significantly, accrual accounting (a
good thing) and requirements to provide the Legislative Assembly with financial information
- Ministries & Portfolios were required to provide financial statements but also details
of the outputs delivered (output reporting)
- Government Statutory Authorities and Companies were also subjected to a strict
reporting regime. Financial Statements were to be prepared 6 monthly under
International Accounting Standards.
In short, the FMI proposed a whole new way of “doing business” for the Government of the
Cayman Islands. Successful implementation of FMI would require “massive changes” *1 /
2.06] on both the operations and the financial reporting right across the wider public sector.
As the then Auditor General said in his first special report [1 Para 1.05]:
“The reporting system as designed is a good one. If it were working as contemplated
in the Law, the Cayman Islands would be at the very forefront of financial
accountability reporting among governments of the world.”
The current Audit General also acknowledges the strengths of the PMFL “which if
implemented as intended would promote effective governance and accountability of
government and public entities.” [4 / 2]
Comment: The trouble is that the PMFL has never been fully implemented as intended.
Even in April 2008, only 4 years after first envisaged, the Auditor General was sounding the
alarm that the system “is not operating as contemplated.” [1 Para 1.06] The first set of
Ministry and Portfolio statements were then nearly two and a half years late and of the 25
entities in the Statutory Authorities and Government Companies not one had complied with
the PMFL.
The Auditor General concluded that
36
“..information that should be publically available remains confidential”. *1/ 1.07+ and
“Because of this, I believe that the Legislative Assembly has lost effective control of the
public purse.” *1/ 1.08+
He then called on Chief Officers and Chief Financial Officers to make financial reporting a
priority.
The reality is that reporting under PMFL has fallen well short of what was contemplated. [1
/2.10]
As a result, there has been no serious scrutiny of government expenditure by the Legislative
Assembly since PMFL was enacted in July 2004. [1 / 2.12] I concur with the then Auditor
General when he said that “the continuing crisis in financial accounting is threatening the
foundation of good governance in this country”. *1 / 4.01+
So What Went Wrong?
Comment: It was always anticipated that implementation of the PMFL would be difficult
and early statements would probably be produced late given the novelty of accrual
accounting, the challenge of output statements and the fact that Ministries and Portfolios
had to prepare their own financial and output statements. Hurricane Ivan didn’t help. I am
left wondering whether this was the final straw? Could the Financial Management Initiative
have been delivered without the distractions and delays Ivan brought?
The then Auditor General listed the following causes: [1 / sect 4]
- Ministries and Portfolios either underestimated or ignored the consequences of the
PMFL. (He illustrates this by describing the lack of work on preparing fixed asset
registers, essential under accrual accounting. Poor Fixed Asset records remains a
problem even to this day, yet it is relatively easy to do given the resources)
- Lack of resources available
- Perceived lack of urgency
- The effect of Hurricane Ivan
How to fix it?
In April 2008 the Auditor General concluded that “the simple solution... is to have the
*public sector+ report … in accordance with the provisions of the PMFL” and to achieve this
“Chief Officers and CFOs must make financial reporting a priority. The current dire situation
will not improve until COs and CFOs make preparing accountability documents as important
as the budget documents that get them the money in the first place.”
This indeed proved to be the case because the Auditor General had cause to report in
similar terms exactly two years later in:
37
[2] Special Report of the Auditor General on the State of Financial Accountability Reporting
(Update) April 2010
In this report he describes how “the recommendations in his 2008 Special Report were not
effectively acted upon” before concluding that “the state of financial accountability
reporting has gotten worse … in fact many elements ...are now two years further behind.”
[2 / 1.02]
He did note that the Government had increased the number of accountants doing the work
and spending an additional $1million in 09/10 to address the situation.
Before concluding that he believed “the situation has become a national crisis” *2 / 1.10+ the
Auditor General made four recommendations to restore financial accountability reporting:
[2 / 1.07]
- Leadership:
Appoint a Champion;
- Strategic Direction:
Determine the costs and benefits of continuing to prepare statements that are 5 to 6
years old;
- Governance:
There is a need to have more central direction and authority. (He said it seems
unclear to government officials that they have this authority and that they can
provide this kind of leadership)
- Monitoring and Oversight:
For example, by the Legislative Assembly.
The detail of the 2010 report shows that the Auditor General concluded that
- Government Ministries and Portfolios had fallen further behind and the Statements
for the Entire Public Sector were now two years further behind
- Similarly, Statutory Authorities and Government Companies had made little progress
in achieving financial accountability
- Annual Reports were not being tabled and made public, and therefore, that
- Financial Reporting to the Legislative Assembly lacked credibility.
In assessing the actions taken by Government since the 2008 Special Report, the Auditor
General concluded in 2010 that:
- the initial response to the 2008 Special Report was inadequate; as was the overall
response during the following two years
- the Public Accounts Committee failed to hold a hearing to discuss the 2008 Special
Report
38
- monitoring and reporting by the Government had been unsatisfactory, and
- the limited actions to restore financial accountability had been ineffective.
He further concluded that this unacceptable situation was not being fixed because of:
- A lack of strategic direction;
- A Governance Framework that was not working; and
- The absence of Leadership.
GOVERNANCE
The former Auditor General believed that the Government had not taken the action
necessary to restore financial accountability. He reported that he had found no
comprehensive review had been done to find out why financial accountability was not
working [2 / 5.06]. No plan was developed. No one in Government took responsibility for
managing and monitoring progress being made. The public sector, he concluded, “had been
effectively left alone to develop their own plans and prioritize financial reporting on their
own.” *2 / 5.06+
In 2006, government officials did prepare a report entitled:
[3] “Report to the Cabinet on the Review of the Public Management and Finance Law (2005
Revision)”.
This report proposed a number of recommendations to deal with issues relate to the
implementation of the Law.
In November 2008, the Government commissioned an Accounting Review Team to report
on the state of financial reporting in core government. Completed in December 2008, this
led to the establishment of the Accounting Task Force which began its work on July 1, 2009.
The Accounting Task Force had the following Mandate:
“..to substantiate the general ledger balances and prepare financial statements for each
ministry/portfolio that has not submitted financial statements and/or an audit support
binder to the Audit Office…”
The Task Force was originally asked to complete its work by December 2010.
The Auditor General concluded that:
“As the information being worked on is so old...and the quality… so poor for those years, it
is...questionable how useful the information will be…” [2 / 5.25].
He assessed “the work of the Task Force to be of limited value”.
39
In its response the Ministry of Finance, Tourism and Development reported that:
“…the Accounting Task Force has encountered a magnitude of challenges and issues which
prevent timely resolution …including the lack of support for transactions, the lack of internal
controls, policies, procedures and oversight, the unavailability of CFOs to respond to queries,
the cumbersome manner of securing permissions to view ministry’s IRIS data, and the
consolidation of statements.” [2 / 5.7]
Comment: This is really quite telling.
It goes on to say
“Without the proper teeth in the PMFL to enforce sanctions for non-delivery...the Ministry of
Finance and in turn the Accounting Task Force cannot produce...the financial information.
The Ministry of Finance does not have the authority to enforce the lack of reporting …if Chief
Officers do not willingly play their part...as specified under the PMFL” [2 / 5.7]
Comment: This is even more telling.
In his second Special Report (2010) the Auditor General said that
“Government officials *had informed him+ that they believe *the+ governance framework is
broken and that the legislation and regulations around public management and finance are
an impediment to take the corrective action they believe necessary to restore financial
accountability” *2 / 5.35+
In the subsequent paragraph he says:
“Put simply, the Chief Officer for the Ministry of Finance, Tourism and Development (Public
Finance) cannot consolidate information that she has not received from individual ministries
and portfolios” [2 / 5.36]
Comment: I disagree that with the view of senior Government Officials. I believe that PMFL
and the supporting Regulations do give the required power to the relevant Chief Officer. If
there were any doubt then it would be for the Chief Officer to ensure the Regulations giving
effect to PMFL clearly spelt out the powers required to ensure good financial governance
was in place. This comes down to a question of leadership which I discuss further below.
In any event the Ministry response was that they were “preparing a proposal to Cabinet to
centralize the core Government’s accounting function under the Ministry of Finance ….under
this proposal, Chief Officers will still be held accountable for the financial results of their
ministry/portfolio to ensure ownership and accountability...” [2 / 5.38]
40
In yet a further report:
[4] Financial and Performance Reporting: General Report of the Auditor General 2010 the
current Auditor General picks up the themes of Leadership, Governance and Structure in his
Executive Summary
“It is my opinion that Finance officials ...should have taken the opportunity since my Office’s
[last] report to provide more effective leadership and stronger strategic direction to the
ministries and portfolios” and
“There is also the opportunity to set out a clear strategic direction for maintaining financial
accountability going forward including:
- Establishing clear leadership at the highest level for...reporting across the public
sector;
- Formally suspending the requirements of PMFL to report on outputs and prepare full
quarterly reports as an interim measure…..;and
- Undertake a...review of PMFL to ensure …it is appropriate to the needs of...the
Government...”
Status of the backlog
As at 9th December the Auditor General reported [4 / 14] that 10 of the 25 SA&GCs had
made progress. While only 5 of the 25 are fully up to date many others have made great
strides and are closer to being current. However, only 6 of the 12 ministries and portfolios
submitted their 09/10 financial statements on time and in accordance with the PMFL. The
Task Force completed its work on 31st August 2010 at a total cost of CI$2m (excluding the
direct and opportunity costs of government employees). [4 / 13] As at April 2010, 73
reports had not been tabled. This number has now risen to 94. [4 /19] As, none of the
reports issued in the last 8 months have been tabled in the Legislative Assembly there is still
no public accountability or scrutiny.
Of those reports that the Office of the Auditor General has reported on since the
introduction of the PMFL the majority have been qualified, and in a significant number
heavily qualified or disclaimed. [4 /24]. This leads the Auditor General to conclude as
recently as December 2010 that “the majority of the reports have such significant
deficiencies that they cannot be relied upon. As a result of this and the lateness of their
presentation, their usefulness for decision making and holding government entities to
account, is practically non-existent”. [4 / 26]
41
LEADERSHIP
In his first 2008 report the Auditor General said that he “stopped short of recommending
that the Financial Secretary take responsibility for correcting the problems that existed”
saying he “didn’t make this recommendation because *he+ believed it would be clear… that
this problem needed government-wide commitment, someone taking responsibility and
strong leadership.” [2/5.39]
In 2010 he found again “very little evidence of commitment and leadership...” He was
clearer in his recommendation saying that he believed “it should be the Chief Officer of the
Ministry of Finance, Tourism and Development (Public Finance) who should be responsible
for developing and implementing an action plan” but he found “there were critical
governance issues preventing this from happening”. [2/ 5.40]
These actions should be to “make effective and timely changes to the accounting systems;
providing clear and concise guidance on accounting and financial reporting procedures;
assessing and monitoring the effectiveness of accounting controls; training and development
of people; developing model financial statements; and ensuring capacity of individuals…are
all important areas that need this kind of leadership.” [2/ 5.41] He found no one doing this.
He further feared that “there will likely continue to be unacceptable progress… until the
right person with the necessary authority and resources takes responsibility and addresses
the problem.” *2/ 5.42] He was right. An opportunity had been missed.
BUDGET
Comment: My conclusion is that the Budgeting side of PMFL largely works. There are a
number of adjustments that could and should be made to simplify the process and lighten
the huge load, but essentially the budget works as designed.
This raises the interesting question of “why?” when the financial reporting side clearly has
not worked. The answer may be in the different individuals involved but it is also rooted in
the consequences of failing in the budget process and the sanctions that would follow.
Consequences and sanctions are missing from the financial accountability side but, put
simply, if the budget did not succeed Ministries and Portfolios would simply cease to
operate as no funds would be appropriated to them. This also means that Chief Officers
and CFOs naturally direct their efforts to the budget and prioritise this over reporting.
In his second special report the Auditor General asked the same question: “Why does the
budgetary process of government work more effectively than the financial reporting process
with the same broken governance framework?” He believed that the answer was “that it
was in the interest of government entities to get the resources to carry out their mandates...
42
if they don’t subscribe to processes set out by financial officials…they simply do not get
funding. There is no such consequence for not reporting financial results.”
Comment: A possible sanction which I recommend be considered is to automatically with-
hold a percentage of the following year’s budget (or to pay less than the full amount of each
monthly payment) to Chief Officers until their Account is complete. I recommend this as
there are few other sanctions and it appears that the need to have funds is a significant
driver of behaviour. The percentage with held would need to be determined and could
increase for a number of accounts missing or if the account has not been completed for
some considerable time. 10% I would suggest is a useful starting point.
OUTPUT STATEMENTS
Ministry and Portfolio annual reports were also to provide a statement of outputs delivered.
These Output Statements would categorize expenditure into a series of measurable outputs
which had been agreed between the Ministry or Portfolio and the Legislative Assembly
during the budgeting process. Subject to agreed measures it was hoped that these Output
Statements would be the main accountability linkage between expenditure in the Ministries
and Portfolios with what the Legislators wanted them to achieve.
Comment: In making Output Statements part of the audited Financial Statements PMFL has
broken new ground. While this is very laudable in practice it makes the compliance so much
more difficult. The Auditor General illustrates this with his own accounts [1 / 5.05] by
describing how he had his draft financial statements to [his own external] auditors by
August 31, 2005 in accordance with the PMFL, yet these were not signed until June 1, 2006
*some 9 months later+…” because the auditors had never done a review and certification of
outputs and had to do some significant review and analysis before completing the job.”
In short, it is not regular practice to incorporate output statements into auditable accounts.
I can see why Cayman chose to do this, but it has had significant consequences on the timely
completion of audits. Incorporating Output Statements into the audited accounts also sets
a far higher standard than normal audits. Given the difficulty in verifying the figures in these
statements and the lack of underlying data collection and evidence systems this will
automatically result in a far greater number of accounts being disclaimed or qualified than
under usual accounting practices and therefore the lay reader and public could be misled
into thinking the financial situation was worse than is actually the case.
I therefore strongly recommend that the requirement in the Law that Output Statements be
audited is removed.
43
STATUTORY AUTHORITIES AND GOVERNMENT COMPANIES
Part V of the PMFL requires that all SA&GCs are audited by the Auditor General (a good
thing) and that each of these companies prepare:
- A Purchase Agreement if they sell outputs to the Government
- An Ownership Agreement
- A Half Yearly Report
- An Annual Report
I am in favour of all the above as best practice, though remain concerned at the volume of
documentation required in practice and therefore how realistically the two agreements are
referred to in the course of regular business.
I have made recommendations in my main report to radically reduce the volume of
documentation and summarise that key material which remains.
END
44
APPENDIX 2
DETAILED RECOMMENDATIONS ON THE PUBLIC MANAGEMENT FINANCE LAW (PMFL)
NOTE
Readers need to be aware that this has been a quick review of the current law. I have taken
one of my 20 days to look through the law in detail to give greater indication of how my
proposals would need to be embedded in either a fundamental re-writing of the law, or the
addition of measures to suspend and amend key aspects of the law.
I am conscious that others have taken far longer in doing similar reviews in the past,
including a Chief Officer led group that took some two years to draft less dramatic changes
in 2008. I managed to track down an unpublished, incomplete report of their findings.
Unlike this study their Terms of Reference did not permit a fundamental examination of the
Law (hence the proposals as drafted I describe as less dramatic). Nevertheless, they did
conclude even then that the Law was not being adhered to or functioning properly.
Given such a cursory review, further work will be needed. The following are initial
recommendations that will require further consideration given the interconnected nature of
the legislation.
GENERAL PRINCIPLE
The fundamental principle must be radical simplification and getting back to something that
works. Then build from there. One way of doing this is to define those decisions and
actions reserved to Cabinet and delegate all others under a general power to manage
finances
A further general principle is that too much is codified into the law. Any revisions should
provide a simpler, over-arching legal framework for good financial management. This would
then be effected through regulations or official / good practice guidance.
PART II – LEGISLATIVE ASSEMBLY
Definitions
As I have recommended in my main report, review the number and range of entities.
Merge and reduce in number. (Though this requires further careful thought and work).
45
Also as recommended in my main report, I recommend a short study by those closer to the
issues than me to reconsider whether the split between entity and executive accounts is
really needed and to flesh out the implications of abolishing this. I appreciate that this will
be a significant change, but many on the Finance side including those senior in the Ministry
of Finance have stated that the split adds considerable workload, and Entity accounts are
given greater priority than Executive. One idea suggested would be to have a single
Executive account for the whole of Cabinet, rather than split to Ministries as now. There
may be other possible solutions.
PART III – GOVERNOR IN CABINET
The Governor in Cabinet must operate in a more strategic fashion. Only that information
which needs to go should go to Cabinet. Short, high level summaries are needed.
All papers should have the written views of the Finance Secretary
The results of Cabinet decisions need to be better disseminated
The Cabinet should receive monthly a consolidated summary financial report showing the
spend to date and forecast spend to the financial year end
Detailed reports on individual ministries are not required unless called for through by
specific financial problems
The Cabinet should receive regular (quarterly) economic updates
At least twice a year the cabinet should review the long term government financial position
14.1 The Cabinet shall manage the finances … (Delete “Governor in”? On financial matters it
is now the Cabinet who have collective responsibility. I appreciate that there are legal
implications in this and discussions are already under way with the FCO)
Add: This responsibility will be discharged on a day to day basis by the Minister for Finance,
advised by the Financial Secretary who will be the principle Chief Officer for the Finance
Ministry and able to instruct all other Chief Officers on financial matters
14.3 Government spending should run counter cyclical to the economic cycle. The
Principles of Responsible Financial Management therefore need to refer to the building up
of a contingency fund in good times to sustain the economy through harder times. It is,
however, beyond the ToR of this review to speculate how large such a fund should be. I
note, however, that the Miller Review did deal with this subject in greater depth. This
addresses the counter-cyclical requirement of government spending and is consistent with a
key recommendation in the Miller report. Cabinet will need to decide what the level of any
contingency should be based on affordability, risks and good economic advice (a
recommendation I return to in my main report).
46
16 This section needs to better describe the financial targets that will be set for Government
Companies. (I understand there to be only four). It needs to be high level along the lines of
target return on investment (RoI), profitability and efficiency measures. I don’t propose any
specific changes to the arrangements for the financial targets for Statutory Authorities other
than they should be permitted to operate as independently as their size, complexity and
risks (financial and political allow). I have not examined whether more could migrate to
Government Company status but this might be worth considering.
17.1 I recommend re-aligning the annual leave year to the financial year, so re-connecting it
to a number of other management cycles and simplifying a number of accounting
requirements
18 The Strategic Phase of the Budget Cycle is critical. Preparation of the Strategic Policy
Statement must be improved
The Cabinet should review the 5 year economic outlook at least annually
19 The detailed planning phase must be shorter and higher level
20 /21 Only high level summaries and schedules of key numbers need be presented to
Cabinet and the LA. I.e. the full Ownership and Purchase Agreement packs must be
summarised. Cabinet and LA do not need to see every agreement and payment schedule –
only the collective list (compared to prior years) a brief explanation of what it is for
(proportional to the amount – i.e. fuller for larger sums) - this will replace the detailed
output statements – and a collective summary that these payments can be accommodated
in cash flows. In effect, I am recommending that the Budget papers going to the LA are
reduced to the Annual Plan and Estimate (APE) and summaries of the other documentation.
23 (2) There needs to be less description of what goes into the documents presented to
“Cabinet” (use throughout as an abbreviation for “Governor in Cabinet” subject to my
observations above). Drafts / outlines of these should be provided as part of supporting
guidance.
25 In considering Supplementary Budgets may initial recommendation was that they are a
useful process and could be used more. I have always seen getting a good Supplementary in
place is essential to good financial management and preparation of the final account. It is
not an excuse to bid for additional funds, but it is a chance for the Ministry of Finance to get
income budgets and other transactional re-balanced. I was made aware during my stay in
Cayman that Supplementary Budgets had opened budget management to abuse in the
past and said in my draft final report that if that were the case then I would not support
that.
I have received argument in writing since leaving that confirms that financial indiscipline
was indeed a feature of the old system when contingency warrants would be used to cover
47
unexpected over spends. So now, in Cayman at least, the correct method of budget
adjustment in-year is through the “exceptional circumstances” clause in the PMFL. On
examination I am satisfied that this meets my criteria so I have not recommended greater
use of Supplementary budgets in this final report.
25 (4) A general point throughout would be that all documents can be made available on-
line and as such this will meet the requirement to publish them. Hard copies will no longer
be provided by Government (even for a charge)
26 A budget must be prepared regardless of the election cycle. Governments cannot leave
office or go into an election without having put a budget in place for after the election. Any
incoming Government will be free to amend the budget of course.
27 Those forecasts required in sections 24 and 26 must include the latest estimates of all
Government Contingent Liabilities (such as the unfunded pension liabilities)
28 .2 In due course, review these sections with the aim of minimising what the LA really
needs for it to oversee the Government and hold the Government to account. Put any
additional detail in the Regulations. This is not to say that all the detail must go in
Regulations as there is a very real danger of this being changed by the Government of the
day in Cabinet. Rather the LA must play its part in minimising the burden of detail that it
requires ensuring that this is proportional.
29.2 As above for sections a to d - with the same caveats that this must be proportional and
not a call to put everything in Regulations. But the fewer demands that the LA make (e.g.
for output statements) the more chance they will have of getting something meaningful and
timely – which is not the situation now.
29.5 Delete (publication should be via the Internet)
Output and Ownership
30 This section needs to be more nuanced. It’s an example of the one-size-for-all approach.
For small organisations and small amounts a simple grant may well suffice. Fuller details of
what the Government is expecting to get for its money will be needed for larger or riskier
organisations. Full blown Purchase Agreements will only be necessary for those largest,
more complex and / or riskier entities such as CINICO (the National Insurance body), CIMA
(the Monetary Authority) and the HSA (Health Authority)
30.3 – 6 Delete. Simplify. A list of payments and brief description (in proportion to the
amount involved) is all that is required.
32 Delegations from the Minister of Finance to the Financial Secretary need to be described.
35 g The LA should set the budgets for all those Independent Bodies reporting to it – i.e. the
Auditor General, Complaints Commission and Information Commission. These bodies
48
cannot be directed by the Minister of Finance and / or Cabinet and must be free to run their
affairs (including their financial affairs) independently. They need not comply with
government financial systems or other processes, but should still be free to buy such
services from Government in the interests of economy and efficiency. I’m not a
parliamentary draughtsman, but it should be possible to find a form of words / mechanism
that allows this greater independence to happen without compromising employees of these
bodies to still be classified as Civil Servants. They must give an annual written report and
present audited financial accounts for their activities to the Legislative Assembly in the
financial year following the year on which they are reporting.
35 i Similarly the power to prescribe and regulate the functions of Internal Audit should be
deleted. This is a line management issue and I recommend in my main report that Internal
Audit reporting line be reconsidered. I would not want to see the Powers of Internal Audit
(Sect 57) diminished in any way though.
36 The references to the Complaints Commission, Information Commission and Auditor
General’s Office in this section need to be re-examined to protect the independence of
these 3 Offices. One suggestion might be that the PAC on behalf of the LA should give any
such directions if the Financial Secretary (or PAC themselves) determine that such an
instruction is necessary. This will probably need separate legislation. I agree that residual
powers to protect the Economy (as detailed in this clause) may well be required.
PART IV – MINISTRIES AND PORTFOLIOS
37 I would prefer to delete reference to “outputs” as currently defined throughout. I accept
that this is getting back to a more basic, less sophisticated budget allocation process based
on bids and judgement. But I am being realistic as all that I have been told and seen
indicates that the current system is not working. The alternative as discussed in the main
report is that the number of outputs is approximately halved by rolling them up into Output
Groups and the number of measures halved too by deleting the need for timeliness and
quality measures.
I do, of course, wish to see a full explanation of what the Cabinet gets for its funding as I am
sure the wider public and others will want to see too. But this needs to be in a form which
conveys meaning. My argument is that the current detailed output measures with detailed
timeliness and quality measures attached obscures as much as they reveal. Yes this will be
more basic, and entities will need to be held to account in other ways – principally through
examination and detailed questioning of their Annual Accounts and Management
Commentaries.
This whole sub-set of Corporate Reporting through management commentary is known as
Narrative Reporting. CIMA, the UK based Chartered Institute of Management Accountants
have worked with pwc (the accounting & advisory firm) on Report Leadership and both are
49
at the forefront of this work. A good introduction (general, not tailored to the public sector)
can be found at:
http://www.corporatereporting.com/narrative-reporting.pdf
A more basic, if dated, introduction to the principles of Government Reporting can be found
on the IFAC website at:
http://web.ifac.org/publications/international-public-sector-accounting-standards-
board/studies-and-research-reports#study-1-financial-report
37 (2) therefore falls
38 a State clearly that once the (“Governor in) Cabinet” has delegated an appropriation to
the Chief Officer that they will not overspend his/her budget, including the supplementary
budget
To do so will result in
- an automatic appearance before the PAC to explain the overspend
- a disciplinary hearing by the Head of the Civil Service
- deduction of the amount of overspends from the Portfolio’s subsequent year’s
budget.
[The PAC Quorum needs to be changed down from 3 to 2 members under the new
constitution and party system if it is to be effective in holding Government to account].
39.1 The Chief Office will describe how s/he will spend the money allocated on meeting the
Government’s long term objectives, how spending in this year will support the longer term
and give some indication of how success will be measured. Delete detailed “output”
statements. Instead, revert to a budget allocation in response to a submission saying what
those funds are to be used for – targets and objectives. These can be thought of as outputs
by another name if you will, but they are not costed at the same level of detail that current
outputs are. A move to work only at Output Group level would be an acceptable way of
achieving this higher level view. Chief Offices to be free to vary what the money is used for
(i.e. it is still a bottom line budget allocation, not a line by line approval. The move away
from line item budgeting has been strength of the current FMI allowing Chief Officers to
move their resources to where they are needed). However, they must be able to account
for all their decisions and can be called before the PAC to be scrutinised on these. It goes
without saying – but I will anyway – that they can also be asked to report to Cabinet on their
decisions, though the day to day political interface will be with their Minister and the
Minister will be expected to be the lead witness in any cabinet level scrutiny – the Chief
Office appearing in a supporting role.
50
39.2 Chief Officers will operate under any general, overarching financial or policy
frameworks laid down by the Cabinet and / or the Head of the Civil Service – e.g. to reduce
or restrict headcount, use common IT, or promote regional or social employment. Within
these frameworks (which need to be more explicitly agreed) the CO has full discretion to
operate their budget thus maintaining one of the key strengths of the FMI
39.3 Delete references to the current detailed “outputs” – replace with services for
example, broadly defined, or rolled up to the Output Group level with the number of
measures halved from four to two.
40 All such delegations to be encouraged.
41 2 Also needs to be enforced – a single accounting system across government. (My
interviews revealed pockets of differences exist, as might be expected to occur in such a
highly devolved and decentralised system).
41 3 I recommend that the number and use of bank accounts needs to be reviewed. Too
many bank accounts or sub-accounts seem to be in use for a government of this scale. Time
and again it was reported in my interviews that over 100 bank accounts operate (i.e. 5 or 6
in each of the 16 or 17 Ministries). While I have not been able to verify these claims, I have
subsequently been told that these are all sub-sets of one central, physical bank account.
But are they really all required? Good accounting systems should obviate such needs. Every
account carries risk of fraud or misappropriation and requires regular reconciliation.
Additional risks and activities probably outweigh the benefits.
41 7 Any Capital Charges under this provision should be accounting transactions only, not
real cash flows
Performance Specification & Reporting
42 2 As above, reduce to the absolute minimum that the LA needs. Delete reference to
outputs. Replace with something like “those goods and services and outcomes to be
delivered”. Deal with further detail beyond that which it is essential for the LA to receive to
hold Government to account in the Regulations
42 6 Delete the reference to outputs or replace with Output Groups
43 Delete this whole section which details the requirement for Quarterly reporting
44 2, 3, 4 Delete this detailed description of the Annual Report (deal with in Regs or Good
Practice Guidance). Define in legislation the minimum reporting requirements for the LA’s
needs.
Annual Reports should be in a narrative form (with supporting metrics). In line with
International Good Practice the Accounts should have a Management Commentary /
Narrative and (in due course) a Statement of Internal Controls. Alas, Cayman is some way
51
off the latter requirement so contain in Good Practice Guidance first, then promote to
Regulations as expertise improves.
45 2 & 3 Delete. I recommend that the PMFL does not apply in the same way or to the same
level of detail to the Office of the Complaints Commissioner. This will probably need
separate legislation. I’m sure there will be some issues to think through but in general other
arrangements should apply to those LA bodies that are independent of Government. One
issue highlighted has been their de-facto status as Civil Servants. While I don’t see them as
being part of the core Civil Service there are certain benefits which could be translated in
treating these “Parliamentary Servants” in exactly the same way as those Civil Servants
working in Government. The LA may, in any event, chose to follow civil service terms and
conditions where it doesn’t want to put its own in place.
45A 2 & 3 Delete. The same applies to the Office of the Information Commissioner, with the
same caveats and considerations as above.
PART V – STATUTORY AUTHORITIES AND GOVERNMENT COMPANIES
The principle here should be that both types of organisation (SAs and GCs) are given the
maximum freedom to operate.
For the handful (four) Government Companies a few key fiscal targets should suffice, set by
the Minister and the detail of PMFL / PMSL should not apply to them thus freeing them to
operate in their respective markets (where they exist) and giving them true delegation. I
have been assured that this is largely the case at present, but the Chiefs of those GovCos I
spoke to didn’t see it in these terms.
This can only happen where strong, effective and politically independent Boards are in
place. I understand that the Boards of the Statutory Authorities are still being strengthened.
This is to be encouraged.
My interviews revealed that there is not yet full clarity over the status of employees of
Government Companies. Employees of Government Companies should be part of the wider
public sector but not subject to PMFL as if they were Civil Servants. The codes of conduct of
Public Employees must apply and each GovCo should be encouraged to adopt and adapt the
core Government principles simplifying them to apply to their own circumstances.
46 1 a Delete reference to outputs, strengthen remainder by adding the requirements to
agree financial performance measures including:
- Return on Investment (or Capital Employed)
- Profitability Measures (absolute and /or percentage measures – could be negative)
- Efficiency Measures
- Other stakeholder performance measures as may be appropriate for that business
(e.g. asset utilisation, staff utilisation, increases in additional income)
52
46 2 & 3 Delete.
47 1 Delete reference to outputs replace with agreement or similar terminology
47 2 Replace Chief Officer (which has specific meaning in the Core Civil Service) with “Chief
Executive or equivalent” (e.g. Managing Director)
47 3 As above, “Chief Officer” becomes CEO or MD as appropriate
49 2 The detail of Agreements should be relegated to Regulations and may change from
time to time. Only that which the LA really and permanently needs should be enshrined in
the Law.
49 3 Only summaries of the (major) purchase agreements need go to Cabinet (and the LA)
This section should make clear that Ministers are responsible for having agreements in place
and that they should delegate the monitoring of them to their Chief Officers or Portfolio.
COs should report on (significant) financial or operating deviations to the Ministers and – if
necessary - Ministers to Cabinet. They must not undermine the responsibilities of the Board
nor manage the GovCo themselves. That is the responsibility of the appointed Board and
the Executive.
COs to use their judgement in when and what to report. That’s why they are Chief Officers.
49 4 c A summary of the agreements only need go to the LA who could call in larger
agreements for more detailed consideration. The presumption should be that the LA need
only see key information. The agreements should still be sent to the LA (but not part of a
huge budget pack) and in doing so be made public by publication on the LA’s Internet.
50 2 As above, not all this detail need be in the law. It can be relegated to the Regs.
Other adjustments similar to those above for Purchase Agreements
Half Yearly Reports
51 The requirements for these should be relegated to the Regulations. They are well worth
doing (for the larger, more significant entities only – under the principle of “rigorous
simplification”) but their format may change over time, be more detailed for the largest
organisations (the Law & Regs. apply a “one size fits all approach” which generates much
paperwork but at times less understanding). It will also be the case that as part of CO
monitoring Q3 or Period 9 reports will be needed for the most significant SAs and GCs. This
should not present difficulties where these organisations are being well run; indeed their
Boards should be demanding monthly management reports with an emphasis on hard close
at Month 9 to give a strong indication of the full year (financial) outturn.
53
51 3 Reports should be summarised and key variance presented to Cabinet by the Ministry
of Finance ahead of the Supplementary Budget process.
51 4 Half Yearly reports don’t need to go to the LA (again rigorously simplify) but a summary
based on the Cabinet report should be tabled for information.
52 2 As elsewhere, only the absolutely essential headings needed by the LA should be here.
The very detailed format of the annual report should be delegated to the Regulations if
possible – where it can be more easily amended to keep up to date. For example the
principle financial statements (Balance Sheet, P&L Account and Cash Flow Statements are
now known by new names under IFRS).
52 3 The Accounts should be presented to the Auditor General or his appointed
representative for auditing. There is no way the Auditor General has the capacity to comply
with the law in auditing all these accounts. He needs to use the private sector firms (subject
to quality assuring their work as part of his contract with them). The major firms appointed
by the Auditor General must be allowed to sign off on accounts (especially for Government
Companies which operate in more commercial spheres).
PART VI – MINISTRY RESPONSIBLE FOR FINANCE
Section 54 is potentially very powerful enabling legislation for the Ministry of Finance which
seems to have been interpreted in its narrowest and therefore less effective sense, by the
Ministry of Finance. This seems to give them all the power they need to direct other Chief
Officers on financial matters. The dotted line / professional reporting relationship
recommended in the body of my main report would give effect to this Section
54 a My main report describes how the economic forecasts required by sections 23 & 26
from the Ministry of Finance must be strengthened
54 b A similar power – that the Finance Ministry co-ordinates the final accounts process is
also required. 54 g has been interpreted too literally as merely preparing. The Finance
Ministry must take charge and own the final accounts process. i.e. the Finance Ministry
must be active not passive: As active as it is in the Budget process.
54 h Gives the Finance Ministry the power to direct Computer Services’ work on IRIS, but
appears not to have been used to great effect
54 k Accounting Policies: In practice this will require central expertise in accounting
standards and could be interpreted as the part of the law on which to enact my
recommendation that Cayman establish a Financial Reporting Advisory Board (FRAB) along
the lines of that used by the UK Government to agree what Accounting Standards apply
54
when to Government Accounting, rather than absolute adoption as soon as a standard
changes.
This body (the FRAB) would also guide on reconciliations between IFRS and IPSAS standards in consolidating the Entire Public Sector Accounts. Details of the FRAB can be found on the UK’s HM Treasury website: http://www.hm-treasury.gov.uk/frab Naturally there may be concerns at establishing another body (especially as I have recommended elsewhere a review to reduce the number of these). Also, this could be seen by some as the Cayman making up its own accounting standards. It will be of interest therefore that the role of the FRAB in the UK has just been evaluated and the report in January 2011 concluded:
The FRAB has played a key role in the process of setting accounting standards for government since its inception in 1996, and it is clear from our Review that it has made a significant contribution in raising the standard of financial reporting by government, a view which was supported overwhelmingly by the respondents to our consultation. As a result, we have not found it necessary to recommend fundamental changes to the FRAB’s role, structure or operational procedures. However, in a number of areas we found that change is desirable to improve the
independence of the FRAB, the transparency of its workings, the composition, skills
and tenure of its members and to document its procedures, all of which will, we
believe, further increase confidence in FRAB’s advice.
54 o Allows the establishment of an internal Government Accounting and HR shared Service
Centre as recommended in my main report to undertake the simple transaction processing
functions across Government in the interests of efficiency and expertise, without removing
delegated decision making or budget control responsibilities from the Chief Officers or their
Deputies.
56 1 As with 54 b (above) this power is strong enough for the final accounts process so that
the Finance Ministry can clearly demand that information needed to complete the
“reports” referred to elsewhere in the Law. As the Finance Ministry seem reluctant to step
up to this role, this aspect of the law could be strengthened to make it clear that Finance
have the powers required.
57 This is a strong and essential clause. My main report recommends changes to Internal
Audit’s line reporting, but this does not need to be enshrined in Law.
55
PART VII – AUDIT OFFICE
58 1 This is also a strong and essential clause. My main report recommends greater
independence for the Office of the Auditor General and that this office be supervised by the
Legislative Assembly in a way which the Cabinet or Government cannot direct intentionally
or otherwise (e.g. through control of the Auditor General’s budget). It is my understanding
that the current arrangements do not safeguard and guarantee the Auditor General’s
independence in a way which would fully comply with International Best Practice for such
matters.
60 a (ii) Clause 44 2 e no longer exists.
52 2 d Delete references to the “Statements under Schedule 4” in this clause.
29 2 b Delete reference to the Auditor General having to audit output statements
(though I recommend their abolition). This is an unusual requirement for an external
auditor who should only audit the standard financial statements needed under IFRS and
IPSAS. To ask the Auditor to do otherwise adds significant complexity and cost to the audit.
It is also questionable whether the Auditor would have the expertise to audit output
statements.
60 b Similar comments apply.
60 c This vfm clause is a strong part of the Law, but it should be modified so that the Auditor
General’s annual audit plan is agreed by the LA (or the PAC on their behalf), including any
vfm studies that he wishes to conduct subject, of course, to living within the overall budget
set by the LA for the Auditor General. (If it is the PAC then this body will need to be made
more effective and have a quorum which cannot mean that the Government of the day can
undermine its effectiveness should it so wish).
The LA will need to decide on the appropriate Audit arrangements for the independent
Commissions that report to it. Private sector firms would be adequate.
63 a & b Will need clarifying to ensure that the Auditor General need only quality assure
(through his/ her Quality Control Reviews) the work of the independent firms s/he appoints
65 1 Similar comments apply to this clause
65 2 Clarify to ensure that the audit opinion of an external, appointed firm does meet the
requirement for an Audit, providing that the firm has been appointed by the Auditor
General and s/he is satisfied that they are delivering to the standards of their appointment
through his/ her QCRs.
65 3 Need to re-consider this clause as it could unnecessarily restrict the market by ruling
out one of the “big four” firms. However, the Office of the Auditor General is small enough
that the LA may wish to appoint a mid-tier firm instead to audit the OAG.
56
69 3 The related provisions of this clause are adequate.
Additional Clause: Somewhere in this section it needs to be pointed out that the Core
Government and Entire Public Sector consolidations can commence using unaudited
accounts. Only those entities which are material will give rise to subsequent adjustments in
the final consolidation.
At the present time, the Finance Ministry appears to use the absence of full sets of audited
accounts as a reason why it cannot begin the consolidation. This is a nonsense that needs to
be stamped out.
66 & 67 I comment above on the need to review and ensure the independence of the Office
of the Auditor General.
68 I am still in favour of the Auditor General levying a “fair charge” for the external audit (as
defined in 68 2 &3) and for this charge to appear in the entities accounts. The LA should
determine what this “fair charge” is based on a report from the AG as part of the approval
of his/her annual work plan referred to above.
69 2 Delete reference to output statements in the annual (narrative) management report to
be submitted by the Auditor General
Central Tenders Committee: In reviewing my notes I didn’t see reference to the Central
Tenders Committee (CTC) in the PMFL. This could be my oversight working at speed on the
Island. If it is not in the PMFL then I recommend that this be rectified. The CTC would be
empowered if it were on a proper legal footing. Any clauses relating to the CTC should
clarify its role as covering Government and its Agencies but not applying to its Companies.
PART VIII – GENERAL PROVISIONS
Trust Assets
No comments
Offences
76 Clearly there has not been compliance with this Law. Some further consideration needs
to be given to penalties for non-compliance since the failure to do so (e.g. to present
accounts) renders the rule of law ineffective.
57
I am not a lawyer, but it seems to me that the conditions in 77 1 are a high standard to meet
or prove (“consent or connivance”).
I would argue that simple failure to comply in certain circumstances (e.g. non-delivery of
accounts) should result in a simple fine of that corporate body or entity. This in turn should
trigger an Auditor General investigation and short report into the probable reasons for non-
compliance together with a management response from the entity concerned personally
signed off by the Chief Office. Both to become public documents and subject to public
hearing by the PAC.
Remaining Provisions
No comments
SCHEDULES
Second to Fifth Schedules Inclusive
These details to be relegated to Regulations. References to outputs and / or output
statements to be deleted.
Add (if not present already) references to an accompanying Management Commentary
END
58
APPENDIX 3
DETAILED RECOMMENDATIONS ON PUBLIC SERVICE MANAGEMENT LAW (PMSL)
NOTE
Readers need to be aware that this has been a quick review of the current Public Service
Management Law. I have taken one of my 20 consultancy days to look through the law to
give greater indication of how my proposals would need to be embedded in either a
fundamental re-writing of the law, or the addition of measures to suspend and amend key
aspects of the law.
I am conscious that others have taken far longer in doing similar reviews in the past,
including a Chief Officer led group that took some two years to propose a number of
clarifying changes to PMSL. It is also worth noting that I was unable to determine how far
the Law was changed to reflect the recommendations made. The Committee described
their work as a formidable task. I will not, therefore, have done justice in such a speedy
review.
The Committee tried to address what it described as “the bureaucracy and
cumbersomeness of these laws”. They took “reasonable proportionality” as a guiding
yardstick while trying to acknowledge the balance between standardisation on the one
hand, and decentralisation on the other.
However, most of the complaints arose from “the lack of familiarity and sensitization on the
part of users”. I suspect this is still the case and as the Committee itself did, I recommend
that education and training in these Laws continue. This could be through the efforts of the
Civil Service College (assuming it is kept as an independent Agency, unlike in the UK where
this is one of the Agencies to be closed).
The following are initial recommendations that will require further consideration given the
interconnected nature of the legislation.
I am the first to say that further work will be needed. I must also point out that I am neither
a legal nor HR professional (though I have supervised both services in my past career).
GENERAL PRINCIPLES
As with my review of PMFL the fundamental principle must be one of radical simplification.
Get back to something that works and build from there. A radical way of doing this is to
define those decisions and actions that are reserved to Cabinet and delegate all others
under a general power to manage personnel.
59
While I understand that there was a deliberate wish to put much of the detail into law, in
practice this has not produced the behaviours (or even the accounts) intended. I would
therefore say that this strategy, laudable as it was, has not worked. So a further general
principle should be that only that which the Legislative Assembly absolutely needs should be
codified into law. Any revisions should provide a simpler, over-arching legal framework for
good personnel / HR management. This would then be effected through regulations or
official / good practice guidance.
In regard to PSML a final fundamental principal has to be to encourage and sustain the right
behaviours that will produce a strong, independent and capable civil service.
It is clear in the Law that only Part 2 of the PMSL, namely Public Service Values and Code of
Conduct apply to Statutory Authorities and Government Companies, yet some Ministries are
imposing other aspects of this Law on them. I believe it is a good template for Government
Companies but under my principle that Government Companies be given greater
independence (as in my main report) then they should be subject to Labour Law and operate
under rules set by their Boards.
The position of Statutory Agencies is less clear, and will depend on what the Statute said
that set them up. I recommend fewer Statutory Authorities and Agencies in my main report,
but for most the principles of PSML are assumed to apply. As I also recommend in my main
report, larger or more complex Authorities should be given greater freedoms. Smaller or
more straight-forward Authorities and Agencies to be managed more centrally.
There may also be merit in aligning the Leave Year (currently on a calendar basis) to the
Financial Year.
Publication should suffice on the internet by the Legislative Assembly (i.e. no need to
provide hard copies)
OTHER WORK UNDERWAY
In the course of my research my attention was drawn to work currently underway in PoCS to
collate and examine possible changes to the PSML Law and Regs. This includes
- looking at the leave year and whether it should coincide with the Fiscal Year (a
recommendation I make below)
- the need to introduce Exit Interviews which I strongly endorse and recommend
- the same goes for a Staff Survey which I also understand is ready to go out, and
- regular reviews of job descriptions (I too picked up that some are out of date and a
few have supposedly never been revised)
I recommend that this constant review and updating continues.
60
PART I - Introductory
No comments – apart from defining the principles above where necessary.
PART II – Public Service Values and Code of Conduct
I strongly endorse these principles. There is, though, no reference to sanctions at this point.
The section on disciplinary action follows in Section 44.
There is no reference to a “speaking out” or “whistle blowing” procedure while discussing
these values. I believe something exists in the FoI Law. Is this sufficient? Should more be
said here?
I recommend that this section should set out what staff, external parties and any other
interested persons should do if they believe that these values and the code of conduct is not
being complied with.
Details of the number of breaches reported and the outcome of the investigations of these
are reported by HR Audit (a good function by the way) to the Deputy Governor. The
Complaints Commissioner may want to include a summary in his annual report to the LA.
PART III – Authorities of the Governor
No comments, except that I recommend a general presumption in favour of delegation, and
consistent delegation across all Chief Officers subject to them operating consistently across
the Civil Service.
PART IV – Arrangements for Official Members
S13 Performance Management is the key to establishing and maintaining the correct
behaviours. This requires (at least) an Annual Review.
I recommend that the Governor gives a simple annual statement in Cabinet to report that
all Official Member’s Performance Reviews have been completed once they have been.
PART V – Head of the Civil Service
S15 2, S16 1 a, S17 1 As above, I recommend that the Head of the Civil Service should
provide a short statement annually on those items listed as being his responsibility to
oversee.
61
S22 These are important provisions. The clear and correct separation of the executive and
political arms of Government is essential for good governance. I recommend that further
consideration be given as to whether they are working in practice.
PART VI – Chief Officers
S30 As above, I recommend that the Head of the Civil Service reports annually to Cabinet
that all Chief Officers have completed Annual Performance Agreements (for the year ahead)
and completed Annual Assessments for the year just ended. If this is not the case, to
explain why not. This report to Cabinet to be copied to the Auditor General for information.
S30 5 While I recognise the laudable reason for coupling the Annual Report and Annual
Assessment together in this Law in the first place, I recommend de-linking the Annual
Assessment from the laying of the CO’s Annual Report to the LA (for reasons of timeliness).
I recognise the practical difficulties with this. But for the time being, it may be better to
have a Report with the Accounts following on.
S35 & 36 I have not spent a great deal of time examining these sections. They look fine to
me, but I recommend that someone more qualified reads them to ensure that they do not
fetter the independence of these two Offices.
PART VII - Staff
S41 4 This requires fuller explanation in the context of Succession Planning. Regulation 25
does a limited job of this.
While it may be controversial and bring its own difficulties, I recommend that consideration
be given to having different tiers for different grades. Those most junior roles can be
appointed to by the Chief Officer (or others acting under the Governor’s delegation). These
would be the most junior roles, e.g. janitorial. S41 8 would indicate that this is already
permitted, but clarity is required from the reports I have received and the visit made to the
Sister Islands
Middle ranking roles need to be advertised only within the Portfolio to begin with. If no
suitable applicants are found, then advertise wider across the Civil Service. CICSA’s
comments on Succession Planning might be interesting in this regard. These are attached at
Appendix 4 in full for information.
The Senior Roles (at least HoD and above) must always be advertised across the whole civil
service to ensure the highest possible standard of competition.
62
S41 9 I strongly recommend that this schedule be enhanced by stating that all applications
must include a copy of the most recent Performance Appraisal before the application is
deemed valid and fit for consideration. Only by ensuring Performance Appraisals are seen
to be used in this way will the culture change.
S44 4 As I have said in my main report, it is essential that the discipline processes are
allowed to run as in this Law and its Regulations. Appointing Officers need to be given full
support from their senior mangers and politicians in following through on what can be
difficult matters.
I recommend that Appointing Officers are given training in discipline procedures and
managing poor performers.
S45 and S46 These sections deal with Delegation and, correctly, state clearly that delegation
is to be the norm.
As above, I recommend further training in delegation, perhaps through reviewing scenarios
in a workshop session as I am struck by how hard many find delegation. This leads to a
culture of “just checking back” and micro-management.
S49 1 As with Official Members and Chief Officers above, it is essential that Performance
Agreements and Appraisals are undertaken at least annually and preferably with a short mid
year review at the half way point.
In my main report I recommend persevering with these. They will not happen unless those
at the top of the Civil Service are clearly demonstrating their support for them and that they
too undertake them.
S49 3 However, as elsewhere, I do not favour specifying the detail of the Performance
Agreement template in Law. This can be relegated to Regulations or a Schedule as it will
need to change over time. The Law should state that Appraisals are required but restrict the
detail of what goes into them to a minimum (for example, headings or areas to be covered)
in accordance with my general principle set out at the top of this appendix
S 51 I note that this section gives Chief Officers the power to implement performance
incentives but in practice they are not in operation. I therefore don’t comment further
except to welcome that this power exists should it need to be used at some future time. I
note that Schedule 3 to the Regulations applies
S 53 I welcome these appeal processes in respect of appointment.
I recommend that their existence be advertised even further than is done now and their use
monitored as a way of countering concerns that not all appointments may be equitable.
Constant vigilance and communication is always needed to debunk rumours.
S 54 The same applies to the right to appeal to the Civil Service Appeals Commission.
63
I recommend that the existence of this right be advertised and their use monitored.
(Part VIII deals specifically with the Civil Service Appeals Commission)
Coupled with the correct use of Grievance Procedures (as set out in Regulation 51) these are
powerful safeguards.
S 55 1 c I note that there are difficulties in the succession planning suggested by this clause
and have recommendations above on how this could be enhanced by advertising within
ever widening spheres for the more senior roles.
PART VIII – Civil Service Appeals Commission
No comment (See S 54 above)
PART IX - Miscellaneous
S 67 I note that this section gives the Cabinet the power to make regulations in a number of
important areas. As elsewhere I recommend that whenever such a power exists, cabinet
receives an annual report back on clause (i) to (j) to note (and if appropriate discuss) how
these regulations are operating in practice. As above, I recommend that the excellent
Annual Report of HR Audit be published.
S 68 I note the support in this Law for the Cayman Islands Civil Service Association (CISCA),
see the following Appendix, and I welcome their contribution to my research while on the
Island.
END
64
APPENDIX 4
Commentary for Mr. Keith Luck on the Review of the Public Service Management Law
(2007 Revision)
28th February 2011
Introduction
The Cayman Islands Civil Service Association (“CICSA”) has been invited to provide Mr. Keith
Luck, special advisor to His Excellency the Governor, with a document briefly outlining areas
specifically in the Public Service Management Law (2007 Revision) (“the law”) and the
Personnel Regulations (2006) (“the regulations”) that should be reviewed.
The following is therefore a high level outline of some of the areas that have been identified
as requiring greater scrutiny and re-consideration given the challenges that have arisen
during their application. We do not seek to provide what we believe are the solutions, but
simply identify what are the key issues that have emerged as areas of great concern. The
report should not by any means be considered as exhaustive in its topics. There will need to
be more robust and formal discussions of the Law and Regulations as part of the ongoing
reform process.
We welcome this opportunity to provide direct feedback during what we believe is a timely
and critical review of the two laws governing the public sector. This is, in our view, just the
beginning. It is our belief that the broader Civil Service, for which CICSA is the leading voice,
must continue to be engaged and truly considered as a partner if the failures of the public
sector reforms are to be remedied. It is our desire to see the system work well and to see
public sector workers’ faith restored in the system in which they are employed.
Intent of the Law
The broad theme running throughout the recommendations below reverts back to the
intent of the law at the time of implementation. We believe that many of the problems
identified arise from a veering away from the original or even stated intent of the law-
whether in the current application of, advice provided on, or even drafting of the law and
regulations. One such area is succession planning.
Succession Planning (s. 55(1)(c) Law and s.52 Regs)
65
As stated in the law, the broad aims and objectives of this section of the law were for the
development of a pool of Caymanians, identification of key managerial and technical
positions, and recognition of the need for advancement of Caymanians within the Civil
Service. The acceptance of the underlying fundamental principle of the continued
“Caymanianisation” of the Civil Service should not be viewed as discriminatory, but as
rational, a core value, and an ongoing goal to be attained- hence the existence of succession
planning within the law. There are other areas of concern with succession planning:
- The law needs to build in excellence in the process by ensuring that succession
planning is an accepted part of professional development for the best and brightest
minds in the public service, and that public service managers’ view succession
planning as essential to the success of the organizations they represent. The process
needs to have stronger guidance as to the requirements, expectations and
performance for both the person on the plan and the managers evaluating the
person on the plan.
- Succession planning should be strongly tied to performance management and
managers should be held accountable in the law for monitoring and managing the
development of Caymanians whom they have identified as potential candidates for
advancement.
- There may be some advantage to splitting the guidance provided on succession
planning along technical/specialized and managerial/generalist tracks. Posts
identified as ‘technical’ or ‘specialized’ could be available only for internal
advancement within a particular entity. For example a PWD senior electrician post
could be advertised internally within PWD for competition between all electricians a
grade below. While other posts identified as being ‘managerial’ or ‘generalist’ could
be made available to civil servants throughout the service who attain these
requirements.
- Specific guidance is needed for how succession plans are carried over when
Ministries are re-organized (sec 20). Given that this is especially common after an
election, transferred staff may find themselves and their succession plans not
recognized by their new ministry or with shifts in responsibility- an officer who is on
a track may find their succession plan to be no longer relevant.
- A fundamental difference between training and succession planning has to be
recognized. Training should be available (where affordable) - to all public servants.
The civil service needs to remain a dynamic organization promoting continuing
learning and development. However, succession planning must be designated for
Caymanians within the Civil Service as a means of achieving the broad aim of
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Caymanianisation. There should also be a recognition of the challenges that the
broad aims of succession planning can create for technical units that have only a few
or possibly no Caymanians with the required skill sets needed to advance in the
organization. Provisions should be made for reasonable internal advancement for
non-Caymanian staff in such instances- but this is actually distinct from succession
planning. In entities where there are few or no Caymanians, strategic planning may
have to be utilized and linked with other human capital provisions such as the award
of scholarships.
- Compliance mechanisms for ensuring the implementation of succession planning
should be strengthened within the law.
Performance Agreements/Assessments
- Consideration must be given to ensuring through the Law and Regs that the process
for performance agreements/assessments be required to begin with the Deputy
Governor cascading down to Chief Officers and then down the bureaucratic chain of
command according to the organizational chart. This makes the process more
equitable. Accountability must be top down and not bottom up as has often been
the case with the implementation of this law.
- Performance agreements and assessments must be synonymous; one should not be
completed without the next.
- In practice, Performance Agreements have proven extremely difficult to produce in a
reasonable timeframe. The ideal situation is that the job description, performance
agreements and assessment process work in lock step. However, if they are not in
place, it should be clarified that an assessment of an employee can be conducted
and the employees’ performance can be compared to the agreed job description.
- For the ongoing success of the public sector reform process and for ensuring best
practice, annual managerial training and training tied to the two governing laws
should be included in the regulations for the Deputy Governor, Chief Officers and
CFO’s and Senior Managers akin to continuing education requirements for many
other professions.
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Discipline
- It is recognized that there is a need to develop general guidance as to how to carry
out the disciplinary mechanism, while providing reasonable support to those being
disciplined. Specific examples of areas that are currently unclear and are creating
differing applications and outcomes include:
1. The process for investigation under gross misconduct involving criminal activity
at the work place (s40 Regs). In particular, clarification is needed as to whether
an entity investigation should take place at the same time as a criminal
investigation and whether in this case there should be dialogue/collaboration
between the appointing officer and the RCIPS investigating officer; &
2. The application of the misconduct sections of the (Regs. S39-42). In particular,
clarification is needed as to whether it is proper to start disciplinary actions
under one section, yet apply discipline under another i.e. a matter may originally
be considered as gross misconduct including a police investigation- but then end
up as serious misconduct if the criminal investigation concludes that no criminal
act was committed.
- Statutory limitations need to be considered for disciplinary suspensions with pay as
to mandate reinstatement after a certain time period unless there is an ongoing
criminal investigation. This will ensure the timely conclusion of investigations.
Political Appointments
- It is recognized that politicians now have the capacity to hire political appointees to
assist them with constituency and political advice. When viewed from the
perspective of a politically neutral civil service, these roles and positions serve to
insulate civil servants from having to conduct partisan activities.
- However, the PSML and Regulations should specify that Political Appointees hired
from outside the Civil Service by a Politician should be governed by specific
regulations stipulating specialized terms and conditions under non-civil service fixed
term contracts, usually observing the election life cycle. Managerial oversight for
such appointments/positions should lie directly with the Minister and not the Chief
Officer, since the appointees are carrying out political duties outside of the civil
service structure. Otherwise Chief Officers may be placed in a delicate and
sometimes untenable situation.
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Categories needing standardization, minimum requirements and universal application:
There are some categories and areas within the law and regulations where
decentralization has created a multiplicity of applications leading to fears of inequity
throughout the system. More uniform rules and guidance along the lines of the old
General Orders have been recommended for consideration, specifically for the following
areas:
- Acting Appointments- especially guidance as to what occurs if the procedures laid
out in the regulations are not observed. Sanctions should exist under the
law/regulations for an acting appointment if the Appointing Officer/Chief Officer
does not observe the law/regulations. This has been a thorny issue within the Civil
Service given that there are a number of individuals who have been acting in
substantive posts (especially H.O.D posts) for a number of years when the
law/regulations define clear time limits and procedures to adhere to. (s.31 Regs)
- Study Leave – a minimum allowance (possibly pegged to the level of studies) should
be stated and not left completely up for discretion. (Regs schedule 1 s.8(1)(a)(b))
- Probation- it appears is only being applied to Caymanians, which if this is the case
would be unfair. Further clarification on probationary periods is required and formal
notification of completion of probation made mandatory. Prior to an extension of a
probationary period, a review of performance to date should be carried out. (s.35
regs).
- Annual leave- it is currently granted according to “years of service” in conjunction
with the employee’s placement along the remuneration band. The question has
been asked on numerous occasions whether “years of service” refers to continuous
employment as a Civil Servant or to the sum of the years in the service even if an
individual left the Civil Service for a period of time and then returned. A clarification
on the criteria used in determining annual leave is therefore required to ensure
universal and equitable application across the board.
Appeals
- There is at least one known instance where a serving Civil Service Appeals
Commissioner has represented a Civil Servant in an appeal relating to a disciplinary
matter. Does this action meet the best practice standards for quasi-judicial bodies?
Consideration therefore needs to be given as to whether the obvious conflicts of
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interest can be sufficiently addressed to recognize this as an acceptable practice for
the Civil Service Appeals Commission (“CSAC”) Sec 58 (4).
- Clarification and uniformity is required for handling grievance/appeals processes for
Statutory Authorities- and whether or not such a mandate should be given to CSAC.
Also, clarification as to what law applies to Statutory Authorities (whether the PSML
or the Labour Law) is urgently needed. While some Authorities still employ many
public service HR practices, they are mainly governed by their authorities’ procedural
manual. In cases that fall outside the parameters of both the PSML and the Labour
Law what happens to these employees?
Implementation and Application of HR Standards
- The question must be asked who is taking ownership of and ensuring that the civil
service entities are implementing the Public Service Values and Code of Conduct as
stated in Part II Section 4 and 5 of the Law? In answering this question consideration
should be made as to whether these standards should be part of the performance
agreements of public service leaders if they are to be meaningful.
- 360˚ appraisal can incorporate elements of section 4 and 5. It is time to give
consideration to introduce some of the broader principles of 360˚ appraisals,
especially as a tool for the development of public sector leaders/managers.
- Some sections of the law, e.g... Public Service Values do not clearly link with the
Code of Conduct or any other section in a manner that would allow for a manager to
be held (reasonably) responsible via application of the misconduct sections of the
Regulations. One example of this is the Working conditions Section 55(2) - whose
responsibility is it to ensure these exist for staff? Is it a part of anyone’s
performance agreement? If these types of requirements are important then they
should be tied to performance measures/standards, and enforceable.
- Sec 28 (2) - should add that in the event that an appointment is not finalized within
“X” days (what ever the time recommended by PoCS is), that all candidates will be
contacted within a reasonable timeframe to update them on the current status of
their application.
Training and Development within Civil Service
- Continuing education should be formally implemented and a requirement especially
for certain leadership levels within the public service.
- A learning and development strategy should be developed for each
Ministry/Portfolio and should be tied to HR Audit requirements. This should also
include career guidance for individuals-especially those being considered to be
placed on a succession plan.
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- Investors in People as a standard should be considered for implementation within
the public sector.
Compatibility with other laws:
The review may wish to take into consideration several laws that may conflict from time to
time with the PSML and close examination should be given to why they currently vary with a
view for harmonization and differentiation where practicable. Such laws which should be
reviewed concurrently include but are not necessarily limited to:
- Fire Service Law
- Police Regulations
- Cadet Corps Law
- The Immigration Law
- The Labour Law
In most cases written documentation has already been provided which highlight the
anomalies.
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APPENDIX 5
HR FORUM February 2011
The HR Forum meets approximately ever 3 months. This was a special meeting. Some 47
people accepted but not all attended.
Introduction
- It is time to take stock and reflect
- The system suffers from too much bureaucracy and too much paperwork
- Could there be simplification?
- “Reform Fatigue” may have set in
- IRIS produced questionable data meaning workarounds were common
- Keith Luck would report in early March
Early Impressions
- The reforms had been a correct and bold initiative
- A number of factors had conspired to frustrate their implementation as planned
- The strategic objectives were clearly not being met
- Changes would be needed, centred on simplification
- The main problem was on the financial side but this forum should talk about the HR
issues
- Change had come later but been more successful in HR terms
- Lack of true Performance Management remained the biggest HR challenge
- I had been asked to look at procurement and some comparator economies if
possible
- IRIS had potential but was not being used or managed effectively
The Forum did not entirely agree
- HR Users still don’t understand how to operate the wider system (let alone IRIS)
- Despite the preliminary budget process under way now it would be many months
before budgets were loaded
- There had indeed been no budget on the system before the start of this F/Y
- The SPS (Strategic Planning System) had not worked in recent years. (Early
experience was more positive)
- There is nothing “strategic” in 5% cut
- The budget process fails as it is disconnected from every other process (i.e.
workforce planning, training needs, salary costs, equipment requirements)
- Therefore cuts become difficult and arbitrary
- There are no rewards for keeping within budget. Some overspend despite it being
against the law and are not penalised
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- Spending the budget in full is still encouraged though this was far from the intention
of the reforms
- One size does not fit all
- There is no real 3 year view. Many in the room had not been asked for their
numbers for 11/12 yet they were HoDs
- The process was now entirely top down. A “number” was given to them. Many
described this as “playing the numbers game” in order just to comply with the law
- Senior Managers no longer seemed interested in whether the budget was realistic
Recommendation: Revise/shorten the Budget cycle, cascade and load all budgets before
the beginning of the F/Y
Recommendation: Improve central economic forecasting and advice to budget managers
The forum further suggested:
- It is almost impossible to run the system properly in a time of cuts
- There is no encouragement to contribute. Its all done at the Ministry level or above
- By the time the budget is eventually finalised, output quantities have already been
set
Comment: FMI assumes full flexibility of inputs (people, buildings and contracts)
- Further, HoDs are told to keep outputs the same even though the budget has been
reduced. As originally envisioned a reduction in budget would lead to a reduction in
outputs which the politicians would need to sign off on. The mantra was now “same
(or more) for less”. Cuts simply had to be absorbed. Reductions in service level are
rarely countenanced.
Comment: This is not how FMI was envisioned.
- Although Departments produce Quarterly Reports there is little belief that these are
then consolidated and produced at Ministry level
- In practice, budgets are driven by staff numbers
- Some Departments undertake Zero Based Budgeting annually
As to IRIS, this was described as “not bad”. It has the processes needed to manage, but the
team to support and effect changes is now under resourced (10 down to 4).
Recommendation: Review the resourcing of the IRIS team
Recommendation: Appoint Process Owners for the key business processes
In response to a question on the degree of centralisation the Forum responded
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- In many cases Ministries have taken back HR delegations, even for the most junior of
positions. Some HoDs are still Appointing Officers though
- The current moratorium on hiring has exacerbated this
- Ministries are now micro-managing Depts.
Comment: FMI was intended to devolve and empower
What is the underlying problem?
- Lack of money. The money has dried up
- Policy decisions drive costs
- Additional work since FMI e.g. FoI and other legislation
- Population growth in past 20 years
- Security issues (not elaborated)
Will the Efficiency Reviews help?
- Some support for these, plus more Peer or “Companion” Reviews
Recommendation: More use of these reviews, star chambers etc, rather than drive
everything through the budget process
As to Performance Management, the forum said
- This “is not a vibrant system”
- Even most of those in the room (which included several HoDs) had not had a
meaningful Agreements and Reviews
- The current tool is too cumbersome
- Performance Agreements are often sent to staff without any discussion or
explanation of their targets. They are then expected just to sign.
- Can’t see beyond filling out the document, i.e. little understanding of the bigger role
of Performance Management
- No real explanation of the product
- Performance Agreements are cumbersome
- If CO not given one, then neither HoD or lower
- No real effect perceived to come out of it
- An individual stated they had not had a Performance Assessment in the last 8 years
- People only doing them for personal benefit (e.g. draw up self development plan)
How to fix this?
- Revise / change the tool
- It all hinges on good manager / staff communications. This is often lacking
- It should be common sense
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- Under decentralisation there is little consistency
- Need to think about agreements at team level and work as one team
- Managers do not operate as team leaders
This sparked a discussion of the complexity of the civil service. Although all worked for the
Government, in reality they were working in quite different businesses. Therefore the direct
transfer of business / private sector practices may not always work. The Government
provided many different services and so people would have different skills and have
different challenges to meet. Perhaps consistency was not achievable or even desirable?
However, the forum did agree that the Civil Service operates far too much in silos; that this
occurred geographically too and was also exacerbated by Caymanian culture.
The Forum would want to see greater Leadership, especially from the Chief Officer team. If
the Chief Officer group acted as more of a team then Departments and staff would follow!
Recommendation: Regular meetings of and communication from the Chief Officer Group.
Recommendation: Job Applications and bids for Promotion must have at least the last
Performance Appraisal attached otherwise can’t apply for the role
Recommendation: “Sunshine” the data. Publish completions by percentages by Dept on
Intranet. Make this data – and much more available and visible to rest of staff. Managers
will be incentivised not to be at the bottom of such league tables.
Recommendation: Completion of Assessments to be a key part of Senior Managers’
appraisals
Recommendation: Simplify the tool to get the basic concepts working. Do annually with
only a short, simple Mid Term Assessment – one or two paragraph write up
The forum addressed pay:
- Few people are prepared to take risks to put their job on the line
- Performance Related Pay (PRP) was in the original model but never implemented.
The forum was split on the wisdom of this (given that this is a public service) but
acknowledged that without incentives / bonuses it was harder to motivate people.
- If bonuses / PRP were to be used there would be concerns over how to do this
equitably
What about other changes or innovations?
- The group volunteered that “change is a constant”
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- Change is not being communicated clearly
- Staff are resistant or have become resistant to change. “Reform fatigue”.
- There may be opportunities to re-design roles to take on new tasks, drop things or
do things differently
- Jobs should not be automatically re-advertised when people leave
- However, there is a very strong sense of entitlement (e.g. people push for acting
allowances as soon as their boss goes)
- Government needs to consider job sharing or having a pool of “floating” staff, or
bringing back retirees to fill jobs short term
- Also flexible working needs to be introduced. This is currently frowned upon
- Employees could be incentivised in different ways, e.g. by “Education Days”
- The current, numerous and disparate initiatives have hit the Civil Service morale.
On promotions and succession planning
- The law no longer allows people to do the “common sense” thing, especially on
internal promotions
- As a result good people are being lost from the Service
- The level of bureaucracy and duplication is significant
- Changes to the HR Law have only made things worse
- As all jobs must be advertised right across the Core Civil Service (not restricted to
Unit or Dept) people are deterred from agreeing to go on a Succession Plan
- People don’t assume they will (automatically) get the job if they are on Succession
Plans, but expectations are raised. Disappointment is all that much harder.
Recommendation: Only advertise within Entity or Dept to begin with, then Ministry then
wider?
On Pay Evaluations
- Some roles have never been re-evaluated in 25 years
- Heavy additional responsibilities are not being recognised for some key staff
Disciplinary Process
- “There is a problem in the Service over poor performance”
- “Uncomfortable, awkward conversations need to be taking place”
- Lack of a true Probationary Period for new hires as so difficult to terminate within
the 6 month period by going through all the steps
Recommendation: Allow extensions of Probationary Period. PoCS to consider.
- How deal with habitual transgressors? Especially if pattern extends over years.
- Extremely challenging here to tackle poor performance
- Huge sense of entitlement in Civil Service
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- Even HoD’s need to be performance managed. Would send a strong message across
the service if they were!
Recommendation: Consider introducing (3 year) Fixed Term Contracts for all. Would keep
everyone on their toes, gives flexibility to size of Civil Service, and removes sense of
entitlement. Contracts would not be renewed unless Performance Assessments had been
done for every year.
- Reports that 24 Civil Servants sacked (last year?). None before this.
Recommendation: Internally publicise numbers of people dismissed. More open
Government. Publish quarterly stats on size of civil service.
- Supervisors not familiar with (local?) disciplinary and performance procedures
- Need support from senior managers to make process work. Top down
- HR delegations new to most people as staff turn over
Recommendation: Continuous training
Pay Cut
- Hit morale hard. Minus 3.2% across the board (not related to seniority or
performance in job). HR teams could have drawn up criteria to protect those most
hard working and effective
Recommendation: Mistake to delay Staff Survey. Implement and deal with the issues and
results as soon as possible.
- Leadership need to be bolder and more visible.
Recommendation: Leadership to be more visible and communicate more. Adopt “Upward
Mentoring” to keep a sense of perspective. Communicate to all staff through the sign on
page of CIG Intranet.
Recommendation: As above - Chief Officers to hold regular (monthly) meetings and
publicise what they discussed. Deal with common leadership issues. Act with greater unity.
Communicate to / with staff.
Health Insurance
- Would Co-Pay if receive a better service
- Civil Servants use the Hospital (ER) and free medicals as alternatives are not
satisfactory
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Recommendation: “Grandfather” changes – i.e. so new terms and conditions apply to only
new joiners
Recommendation: Review where two Depts are paying medical insurance where civil
servants are married
Other aspects of PMSL
- Consistency of Terms and Definitions e.g. the definitions of Gross, Serious and Minor
Misconduct. Much left to the discretion of the Appointing Officer (taking into
account the actual role performed). [Comment: This is no bad thing]
- Ministries to have their own policy & procedure manuals, yet Ministries are re-
organized every 4 years so people must re-do and re-learn.
Comment: The current Law and heavily decentralised arrangements are not helpful in a
Government where re-organisation after fixed terms every four years is the norm.
- Impact of Human Rights legislation?
Previous Review(s) of PMSL?
- In 2007 a senior team of officers reviewed the detail of PMSL. Not clear if any of the
recommendations were implemented.
- Not good at follow through and implementation here
Closing Remarks
- Civil Servants continue doing it for the betterment of the country
END
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APPENDIX 6
CFO FORUM February 2011
The CFO Forum meets on an ad-hoc basis. Fewer meetings have been held in recent years.
There is no obvious convenor for these meeting. This was a special meeting. Nearly all
CFOs attended.
Recommendation: Establish a clear Head of the Government Finance Profession who would
Chair these meetings
Introduction
The group confirmed: “The Auditor-General’s Report says it as it is: i.e. lack of Leadership,
Governance, Structure and Systems. It’s an ugly situation.”
What are the underlying issues? What should happen now?
- Standardise on a single (skeleton) reporting pack
- Consolidation – will be a nightmare for 05/06 FY. Inter Agency balances are all over
the place.
- Can’t rely or depend on system generated reports. They don’t even pick everything
up in the G/L!
- Therefore not true accrual accounting
- No effective, efficient reporting mechanism.
- Its just not a Computer Services priority
- Computer Services have no overall priority listing
- CFOs have no opportunity to set the (business) priorities
- So work arounds are put in place instead
- The original implementation was flawed
- We have no proper fixed asset registers
- Sub-Ledgers do not properly interface to the G/L
- Treasury (the keeper of the keys for these transfers) have problems transferring
balances from sub-ledger to G/L. Once Treasury do catch up it throws out the
reports that the CFOs have been working with
- Other people have access to our books
Fixed Assets
- Parameters should have been user determined during original implementation.
Didn’t happen
- Fixed Asset transactions all posted to “Dept Zero”. This doesn’t exist, so CFOs have
to enter manual journals every month to correct the postings. It was and has never
been fixed!
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- As many Departments’ Fixed Asset Registers are poor or inaccurate then Govt face
having accounts qualified or disavowed for another 5 years.
- Revaluation last occurred in 2001. Should happen every 5 years. Missed 2006. No
sign of revaluation in 2011.
- Therefore a true opening Balance Sheet was never, ever established.
Recommendation: Load these original 2001 figures and work from there
- Revaluation is an expensive exercise
Recommendation: Clarify own Government accounting policies under a FReM/FRAB
equivalent. E.g. only revalue on disposal or if significant works / refurbishment etc
IRIS System Ownership
- Should be under the Accountant General, not Computer Services. No accountants
work in the IRIS Office
Governance
- Ministry of Finance (i.e. subject matter experts) don’t believe they can tell other COs
how to do their accounting
- Similarly, CFOs actually have little say in the process. They cannot direct the work of
Department Accountants and cannot set work priorities for them.
Recommendation: CFOs need a “dotted line” professional reporting line over Department
Accountants in order to enforce compliance with accounting deadlines.
- Need to have open communications and greater respect for each other’s roles
- Need to set common standards and processes from Ministry of Finance
- The CFO and Treasury community should own the function
- Problems go back to poor implementation of IRIS
- Basic Controls were missing or poor
o E.g. Can post to Control Accounts (!)
o No history retained in Personnel Cost reports so all data is lost when a person
moves to another Dept. So audit trail fails and account is qualified.
- Lack of good communications prevents establishing priorities and striving for
continuous improvement
Anything good about the system?
Yes.
- Commendable move to accrual accounting. Absolutely right
- Attempt to link inputs to outcomes. Though difficult
- Attempt to report on whole of Government
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- Delegation and empowerment
All this is important for the reputation of Cayman. Original reforms put the reputation of
the Cayman high right across the region. Cayman was then at the forefront. None of it
should not have been achievable. It would have been implemented right in the private
sector.
It just wasn’t implemented as planned / hoped. Transition didn’t get off to a good start;
didn’t go too well; then hurricane Ivan hit and other priorities came to the fore.
Implementation was phased
What are the problems?
1 Accountability
- Lacking. Annual and Quarterly reporting has never really taken hold
- In early years a year or two passed; nothing happened.
- Peter Gough’s report in 2005 addressed a number of the issues at that time
- The opening financial position was never properly established (liabilities and other
balance sheet items not just fixed assets)
- Many CFOs have now left or moved on
- High turnover of finance staff
- CFOs have become the “whipping boys”
2 Leadership
- No strong leadership
- CFOs report to COs
- No place that the CFOs can go to get help or support
- No Director of Accounting (though used to be one in Accounting General’s Dept)
Recommendation: Bring this role back? Have CFOs report on a “dotted line” basis to
Director of Accounting / CO Finance?
This found strong favour with the CFOs but they said it would need to be someone with
experience who has done this before, a strong subject matter expert, and a strong, resilient
personality
3 No Procedures or Standards
- Executive Transactions are outside of the CFO’s control
- Reports not working e.g. can’t add an accrual
- Can’t accrue if this would take spend over appropriation even if that’s what has been
authorised or instructed
- Need “exceptional expenditure” mechanism
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4 Bank accounts
- 10 or 11 Accounts per Ministry so well over 100 plus across all 17 / 18 Ministries
- They don’t reflect the core structure (Ministries often change)
- So lots of reconciliations
5 Reshuffles
- Figures were initially held at Balance Sheet level rather than Cost Centre level. So
can’t cope with the restructures that occur every four years after elections. Audit trails and
ownership links are lost. This has been improved recently – except for Cash which is still
problematical
6 IRIS / System
- Give us as CFOs the correct reports and tools needed to do the job!
- All CFOs are reporting off Excel using comma delineated text file extracted from trial
balance report
(Comment: Wow. Not a good use of the investment in IRIS)
- “Several legs on the table are broken”
- “Someone who has the authority to get it done needs to push on through”
- IT Dept can’t be setting the priorities
- If the Accountant General can’t get it done then who?
- No functional or Business Analysts exist. Don’t need to be a computer person but an
accountant
- IRIS team only interested in making minimal changes
- Computer Services were forced to upgrade this August as version was going out of
support. Otherwise wouldn’t have
Recommendation: A Financial Systems team / capability is missing. Such a team, reporting
to the Finance Chief Officer should own the data and prioritise enhancements to the system
- Really need to re-implement IRIS to get it right (!)
- Is Oracle the right system?
Recommendation: Re-implementation but only after further study and consideration to
determine if Oracle is the right tool
- The Budget Management Unit takes ownership of that process (based on Excel). So
why are things different on the financial reporting side?
- Accountant General should have clear ownership for reporting
Recommendation: Link Budget and Actuals team. Split serves little purpose
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- IRIS should do 90% of the work
- Get good reporting tools running
- Reporting has to be a priority
- ADI is an inadequate tool (6 or 7 years old). Reports are often inaccurate.
Recommendation: Agreed. Implement Hyperion. Also use its budget capabilities. CFOs
support this
- IRIS not working as it should
- Need common version and computing standards
- Re-implement with latest version of Oracle: “We have, after all, come a long way and
now have something to work with”
- Standardise monthly processes across core government
Recommendation: Need someone in Ministry of Finance with the clear authority to enforce
compliance
7 People/ Training
- Everyone genuinely wants the system to work
- Need the resources. Right people with the right skills
- Has the person done it before? Are they experienced?
- We are trying to retool people who are resisting change
- People are fearful of change. They need additional help and support. Coaching
- Civil Service College? No continuous training
Recommendation: Revisit the continuous training that is being provided (if any)
8 Accrual Accounting
- Some processes are still working on a quasi-cash basis. Especially Capital Accounting
- Cash Management Unit are resistant to change. Displays lack of understanding at
the highest levels
- So no accruals for capital spend
- Accrual accounting selectively applied in other areas
9 Balance Sheet / Fixed Assets
- Needs fixing
- Set firm timetable and dates for cleaning up the Balance Sheet
- Centralise fixed asset control. Do as one book?
- Internal Audit to assist in pulling the register together
- Wipe existing info
- Re-upload
- Huge exercise. Government really exposed
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- System still corrupting the data (Dept Zero)
- Therefore, too much manual manipulation
- Increase capitalisation threshold. Too low at $1,000.
o E.g. Capital used to buy text books which are then capitalised over 10 years!
o I checked. This is indeed the case. Do textbooks really last 10 years?
- Would impact operational budgets, so adjustments needed.
Recommendation: As above – begin by sorting the current Fixed Asset Registers and
Balance Sheet and adjust (upwards) the Capitalisation thresholds. (Would impact current
account of course)
10 Audits
- Why have audit opinions for every Ministry & Portfolio?
- Government entities “over Audited”
Recommendation: Only audit at the Core Government and consolidated Entire Public Sector
level. Would significantly decrease the audit burden if not every M&P had to be audited
- Re-examine provisions of IPSAS 23 (Fair Value)
- Inter Agency Balances are “all over the place”
- As no reconciliation the true cost of outputs are actually under reported
11 Inter Agency
- Mechanism needs to be automated to support Inter Agency (i.e. to force the balance
in counter parties’ books). Needs a systems module.
- Shouldn’t mail bills
- Shouldn’t cut cheques!
- Treat as Accounting Transactions if brought back
Recommendation: Inter Agency treat only as Accounting Transactions
12 Outputs
- Need to be timely and of sufficient quality to assist the reader
- Remove the requirement in law to produce Output Reports (do as good practice)
Recommendation: Radically cut back on output reporting. Simplify the system.
- Only audit quantities, NOT timeliness and quality
Recommendation: Completely remove the requirement to audit output statements (and
certainly not the quarterly reports)
84
13 Improve the system over time
- i.e. “progressive elaboration”
- promote good behaviours and “good practice”
- FMI based on New Zealand model. 4million people. Only 50,000 in Cayman
- Simplify
- Reporting needs to be standardised. At Agency level too
- “Statement of Outputs” not well defined
- No “Management Letter” template issued from the centre, or “Statement of
Responsibilities” for Chief Officers to sign
- Need to improve forecasting too over time!
- So strip down financial statements
Recommendation: Radically Simplify
- “Do we need to be fully IPSAS compliant?”
- Very few people really keep fully up to date with IPSA.
- Need one or two very knowledgeable people (centre of expertise)
Comment: See previous Recommendation on need to have a FRAB to decide the
Government’s Accounting Policies
14 Executive / Entity Split
- Get rid of it?
- Not much info in Exec
- PMFL requires it
- Was its purpose clear?
- Have one “Executive Account” for whole of Government?
Recommendation: Review the need for the Executive / Entity split (especially at each
Ministry). Do the benefits outweigh the additional costs of running in effect two sets of
books in every Ministry? Consider having just the one Government wide Executive Account.
- Establish a single Chart of Account?
Recommendation: Review the current Chart of Accounts (in slower time)
15 Performance Agreements
- “not reached where we would like to be”
- Need to re-align the annual leave and accounting years. Will remove admin burden
Recommendation: Move the leave year to lone up with the Financial Year
- PMSL is a “good guiding umbrella”
85
- The problem is that the Performance Agreements are just linked to outputs, so there
is no real accountability as the outputs are not realistic in the first place
- Too much paper. Simplify
- Keep conversations going but don’t expect write up every 3 months
- Relate to performance pay? (Repealed / never implemented)
- Promote a philosophy of “lightening the load”
Recommendation: Simplify and lighten the paper burden of the Appraisal process. But
keep it going in this lighter form.
16 Procurement
- Some adjustments to the law needed
- More detail needed for purchases
- More standardisation
Comparator / Analogue Jurisdictions?
No obvious comparators
The Miller Report had severe limitations in drawing on comparable states and countries.
Bermuda? Runs on J D Edwards which has been bought out by Oracle, so now part of
Oracle)
Ask Oracle?
ENDS
86
APPENDIX 7
IMPLEMENTING THE CHANGES: AN APPROACH AND OVERVIEW
How to take forward the findings?
Background
My report recommends a number of changes. These will need to be dealt with in a
controlled manner. I describe my proposed sequencing in the next Appendix.
Some of the recommendations can be implemented quite quickly. Others will require
legislative enablement or a change in the way in which the services are delivered and
managed, which may take a longer period to achieve.
The following will need to be considered:
The need for a range of Finance and HR interventions with several interrelated
actions being taken at once
Implementing improved performance management systems to drive performance
and link service outcomes with individual’s objectives and accountability
Improving the availability of management information data to enable better decision
making
Redesigning the delivery of services to achieve a leaner, fitter approach
Recognising the importance of effective people management in the delivery of
services
Placing Government Companies entities on a fully commercial footing to enable
strategic and operational effectiveness
Further, Scoping and Feasibility Studies are recommended for a detailed analysis of
some recommendations.
Success criteria
In my view a coordinated action plan is necessary to make the changes required which are
sustainable over the longer term. The success of implementation will depend to an extent
on how the recommendations approved by Cabinet are put into action. Critical to this will
be the establishment of a dedicated programme management and oversight arrangement
to provide direction and control and to ensure that the agreed benefits are delivered.
This review of the CIG Finance Law, coupled with the first three phases of the service
reviews represent a significant change management/transformation programme which will
need to be managed effectively and efficiently and will take time to deliver.
The key steps to a successful programme might include:
87
Decide which changes to make – combining the outcome of the Phase 2 and 3
Reviews and this review of the CIG Finance Law
Appoint an implementation/change team and give them the authority to make the
changes
Decide when and how to amend legislation
Ensure visibility and transparency on public sector performance and the impact of
the changes being made
Have courage. Stick with the programme. Some changes might take longer than
others to deliver
Engender a learning culture and feedback lessons learnt into the overall change
programme
Planning the change programme
There have been a number of reports that have all offered suggestions for change, but the
difficulty has been that many of these have, for whatever reason, not been carried forward.
With regard to this Review and those Reviews of Public Services I believe that there must be
a planned programme of implementation that takes account of all of the relevant factors so
that the potential savings identified are made to stick over the medium to longer term.
Failure to do so will quickly lead to savings being eroded and costs returning.
In simple terms I would suggest something along the following lines:
1 Mobilise
Premier and Governor to seek Cabinet approval to a CIG Transformation Programme
Draft and agree Programme Charter and Mandate
Establish Governance arrangements as follows:-
1. Appoint oversight/steering committee - possibly chaired by the Governor or his
nominated representative, membership drawn from mix of political representatives,
Chamber of Commerce (possibly), internal senior civil servants
2. Establish panel of Subject Matter Experts to advise the oversight/steering committee
- these should be independent of the civil service and have the relevant experience
in transformation programmes
88
3. Appoint a Programme Director - probably external to the civil service but with the
relevant transformation experience
4. Mobilise a permanent Change Management and Project Management office to
provide support to the Programme Manager, oversight/steering committee and
coordinate, track and substantiate the overall implementation activities -
membership to be drawn from external possibly with some support from internal
civil servants.
Confirm the case for change. Doing nothing is not an option!
Prepare a high level roadmap and initial plans for implementing the changes
required across all the components identified including strategic, people, process,
finance, HR etc
Develop budget and obtain ring fenced funding (the programme must be fully
resourced so setting the funds aside is a prerequisite)
2 Design
Prepare the detailed implementation/change plans
Draft and socialise the Benefits Realisation Plans
Agree stakeholder engagement and communications
3 Construct
Construct and validate the changes to policy, people, processes, systems etc
4 Implement and operate
Put in place continuous improvement framework
At this stage all that needs to be agreed is the mobilisation phase. Allocating the
appropriate resources and providing a budget are the key elements.
END
89
APPENDIX 8
OUTLINE IMPLEMENTATION PLAN
In the total of 20 days available to the Review it is not possible to also devise a detailed
implementation plan, or to cost it.
This work can be done – and I would be delighted to be asked to do it – but before doing so
the principle recommendations need to be agreed. To do too much detailed planning
without the benefit of the general direction being agreed would be fruitless.
What is startlingly clear, to me at least is that this year’s accounts must be produced. The
Cayman Islands, its Government and all interested parties need a clear “going in” position
after so many years of missing, incomplete or disavowed accounts.
I strongly recommend this in the body of my main report. These accounts will need to be
produced to a high standard, capable of passing Audit. After so many missing years, this will
be like starting from scratch, which is why my first draft report argued that planning for this
year end (June 2011) should have begun in March.
I have to record my concern that there appears to have been little movement on this front. If
this were a company it would be a form of due diligence to understand the true financial
position the organisation really finds itself in.
I also recommended in my interim report that because of the scale of the challenge, a dry
run or hard close was attempted for the Third Quarter, i.e. as at 31st March. This would
have pointed out the areas requiring greatest attention allowing these to be addressed in
Q4. This was not acted on and will not now be possible, increasing the risk to the success of
this coming year end closure exercise.
My suggested order of activity would be as follows:
A Complete this Year’s Accounts
Begin planning for and drawing up this year’s Accounts
This needs to begin with the Balance Sheet. Specifically the Government must be able to
sign off the Fixed Asset register with the Auditor General well ahead of June 30th 2011.
The Accounts Closure timetable needs to be defined in detail and agreed with the Auditor
General. As an example, I attach a relatively detailed project plan in the next Appendix.
This will need to be adapted for the Cayman, but it does show how tasks begin well ahead of
the year end on 30th June, and are tightly managed daily through to completion.
The Year End close must therefore be managed as a Project with a clear Project Manager
and dedicated Project Team. Some additional, probably external, expertise will be required.
90
I have previously indicated my willingness to return to lead the initial phases of this work
and to do so from the UK when not on Island.
B Organisation Changes
Ahead of the year end, line management changes to the CFO’s reporting lines and any other
organisational changes agreed in my recommendations should be implemented early on.
Experience shows that the sooner these matters are dealt with the better.
C Establish the Governance and Implementation Team for this Review
The recommendations in this report need consideration (probably by Cabinet) and approval
given to proceed with further work. Funds will need to be identified for the next phases
(detailed implementation planning) and the initial review of IRIS.
If my recommendation on Governance is agreed, this should be one governance structure
and review team for this review, the Public Service Reviews and any closely related parts of
the same change programme.
My thought on the composition of the Governance needed to implement this review are
listed in Appendix 10.
As part of this activity, the next phase of the review of PMFL and PSML is a more detailed
implementation plan and associated costings.
D Initiate the Recommended Review of the Future of IRIS
This should cover the questions of where the team should report to, what size it should be
and, longer term, the upgrade, migration, or replacement plan for IRIS. This will involve
specialist (probably external) skills and knowledge. The initial review should be some 4-6
weeks long, based on the outcome of which a costed business case for upgrade,
replacement and migration should be produced as a subsequent phase.
E Establish the Chief Office Team and Meetings
Meantime, running alongside my recommendations on strengthening the cohesion of the
Chief Officer team and wider communications can be implemented at almost no additional
cost.
F Complete the Current Budget Cycle
G Begin the Recruitment of a Senior Chief Economist and any other roles approved
H Re-establish the limits of Delegations
My report recommends these be at Portfolio level for most functions. The beginning of the
new Financial Year is the ideal time to change these.
91
I Initiate the further reviews recommended in this report
These include:
An early visit to Jersey
This is essential in order to follow up on the way they undertake Strategic Planning,
Budgeting and the much simpler systems they use. These include their accounting
systems as well as processes for measuring performance against thigh level
objectives (unlike detailed output measures).
I had hoped that such a visit could have taken place in late March as the sooner the
Jersey model is understood, the sooner it could contribute to define the simplified
way forward.
As mentioned in the main report, much can be found on the States of Jersey website
(www.gov.je) but there is nothing like a short visit to build understanding.
The costs and time involved would be modest, yet the return potentially significant
for such an investment. I would be willing to assist.
Review of the number of Bank Accounts
This should not be too difficult and should be resourced internally, though a strong
element of external challenge is recommended to ensure the review is robust and
not a tick-box exercise.
Review of the Executive / Entity Split
Again this should be possible internally (the CFO’s should be well placed). As above,
external challenge would be beneficial.
Review the number of Agencies
This is potentially a more complex, wider and time consuming review, but one that
will be worthwhile. Links to the Service Reviews are obvious so those working on
these reviews will be well placed to contribute. This should include those individuals
who have supported the Reviews from outside the Civil Service.
Implementation of the findings of this review will need sensitive handling and be
subject of to a further authorised phase and earmarked funding.
J Rewrite the Laws
At some point, the new operating model needs to be codified in Legislation. This will
require careful Drafting by the relevant expert draughtsmen as well as the identification and
commitment of Legislative Assembly time. Given the pressure on such time, potential slots
92
need to be identified and agreed as far in advance as possible and officers held to delivering
to meet these dates.
The bulk of the changes will be in the PMFL so this should be given priority.
END
93
APPENDIX 9 AN EXAMPLE PROJECT PLAN FOR CLOSING THE 2010/11 ACCOUNTS What follows is an example of a possible project management template for the Year End Accounts exercise. I would expect Cayman to use something similar. The Year End exercise has to be managed as a Project. It also shows the huge amount of work involved and the need to plan ahead. Note how the process begins several working days in advance of the Year End (30th June is “0” or task 13 in the table. Equally important are the following highlights:
Green = Milestones Blue = Management Reviews Yellow = Holidays Red = Auditor General’s Accounts
This sort of template can and should be adapted to reflect the unique circumstances of the Cayman Islands. If anything, I would begin the Fixed Asset and Balance Sheet items as soon as possible, as recommended in my main report.
Planning Factors and Assumptions
1 Additional control work at year end may impact on plan dates
2 Audit follow up actions handled separately with relevant teams
3 etc…
4
5
Ref Activity Comp
Date
Action
Owner Contact Team
Completed
/ Status Note
1 Prepare and validate draft
plan -42
2 Construct Q4 accounts
model -32
94
3 Agree Communications
and Guidance -32
4 Pensions - Agree
treatment -30
5 Communicate Plan -26
6
Refine/finalise
Supplementary pack for
Year End
-26
7 Letter to HoDs -26
8 Publish Supplementary
Year End pack -23
9
Review accounts in line
with Auditor General's
disclosure guide
-19
10 Confirm schedule of
assets held for sale -19
11 Update for assets held for
sale -19
12
Audit Committee meeting
to review plan and
progress
-13
13 Close Sub-Ledgers Per GL
Timetable 0
14
Check for Y-End
Overtime, bonuses and
similar
1
15 Ensure yr-end exchange
rates are identified 1
16
Agree creditor/debtor
balances in excess of
$5m, and others as
determined
8
95
17 Prepayment Release 8
18 Accrual journals 8
19
Issue lists of assets in the
course of construction to
check
8
20
Confirm March payment
runs accrued in Accounts,
otherwise journal
8
21
Review Finance
instruments & Foreign
Currency gain/loss
8
22
Prepare & Post
Unrealised gain adjusting
journal, update model
8
23
Close General Ledger (1)
Per GL Timetable (Open
Period 13)
8
24
Send Trial Balance to
Management Accounting
team to reconcile
8
25 Review accounts for
consolidation 8
26 Review Provisions notes 9
27
Property valuations
[30/6/2011 valuation
date] provided to Fixed
Assets Unit
9
28
Prepare PPE and
Intangible Asset
schedules
9
29 Receive March returns
from Manual Postings 9
96
30 Deadline for Robustness
Checks 9
31
Provide March GL
transaction data to
Auditor General
12
32 Create Provision journals 12
33
Reconciliation of
Accounts Payable control
account
13
34
Reconciliation of
Accounts Receivable
control account
13
35 Calculate revised bad
debt provision 13
36 Complete Balance Sheet 13
37 Update losses and
payments note 13
38 Complete Payables and
Receivables Analysis 14
39
Debtors/Creditors from
payables and receivables
analysis on journals
14
40
Post complete
Supplementary Returns
& submit
15
41 Activity Recording
Returns for Q4 16
42 Progress Update Meeting 16
43 Update Cap Grant reserve
schedule 16
44 Completion of
Remuneration Report 16
97
data/input
45
All completed
reconciliations from
external account holders
received
16
46
Projects detail available
to load to Projects Ledger
over next 2 weeks
16
47
Projects detail for Manual
Posting available to load
to Projects over next 2
weeks
16
48
Produce initial
Management Accounts
for June-11
19
49 Accrued Income journal 20
50
Accrue for Credit Card
and Lodge card
transactions
20
51
Receive feedback from
project managers re
assets in the course of
construction
22
52 Provide Version 1
Accounts for review 22
53
Staff data for notes -
Salary data on special
advisers/ministers
22
54 Confirm secondment
schedule 22
55
Provide Staff in Post data
to Team for Staff
Numbers Note
22
98
56 Receive debtor
confirmation 22
57
Central bank account and
supporting cash clearing
accounts reconciled
22
58 HOLIDAY 23
59
Enter period 12 manual
post journals into general
ledger
27
60 Progress Update Meeting 28
61 Provisions - Circularise
main provision holders 28
62 Capital Commitments -
Check data 28
63 Update indemnities 28
64 Update Contingent
Liabilities note 28
65
Fixed Assets - update
database with additions
and deletions.
28
66 Auditor General pre audit
planning meeting 28
67 Reconcile Projects Ledger
to General Ledger 29
68
Enter Mar-10 indices into
Fixed Assets
Reconciliation
29
69
Completion
Supplementary Returns
Validation
29
70 1st Cut Analysis Journals
for accounting allocations 29
99
11
71
Related Party
Transactions - provide
supporting detail for Note
29
72 Provide completed data
for remuneration report. 29
73 Validation of Q4 Activity
Returns 29
74
First Draft of Resource
Accounts Management
Commentary
29
75
Related party note - Draft
circular for Board and
Ministers. Collect
information
29
76
Review Supplementary
Returns for new finance
leases (add to fixed assets
if considered material )
29
77
Update on Progress to
Reconcile accounts for
year end
29
78
Review/upload property
valuations. Re cast
Journal including
depreciation.
29
79
Consolidate
Supplementary Returns
and enter into General
Ledger
29
80 Provide programme data
to projects team 29
81 Update accounts model.
Journaled consolidated 29
100
log
82
All adjusting journals
entered into GL. Update
GL
29
83
Advise on state of
reconciliations and
balances at risk
29
84
Provide a trial balance
and supporting data for
consolidation
29
85 Commitments under
leases 29
86 Send and review loans,
dividends, balances 29
87 HOLIDAY 30
88
Reconcile Programme
Projects to GL 1st Cut ADJ
11
34
89
Final Reconciliation
journals in GL to loaded in
Projects
34
90
Provide Note 5.2 -
Average Number of staff
WTEs
34
91 Run Travel Accruals
Report to assess impact 34
92
Prepare PPE and
Intangible schedules for
draft 1 (includes
Impairments).
34
93
Provide team with a
programme spend
breakdown
35
101
94 Calculate Reserves 35
95 Calculate Cash Flow 35
96 Calculate Net Cash
Requirement 35
97 Issue draft Accounts for
Management Review 35
98 Analysis for Programme
Note 1st Cut ADJ 11 36
99 Provide Terminal Gratuity
numbers 36
100 Draft Accounts Review
Meeting 36
101 Calculate Allocation
model 37
102
Review Auditor General's
actions and Recs from Q9
Hard Close
40
103
Provide Adjustment
Period GL transaction
data to Auditor General
42
104 Sign off Revaluations 42
105
Pension Scheme
Schedules return - LAST
DAY
43
106
Update GL for
Management accounts
items
43
107 Issue Draft Accounts to
Auditor General 44
108 Update Costing Model
and reconcile 47
102
109
Pension - Review reports
and update pension
model
49
110
Complete validated
outputs for Version 2 with
key stakeholders
49
111 Progress Update Meeting 50
112
Issue Second Draft
Accounts to Auditor
General
51
113
Final Audit: Disclosure
checklists and analytical
review
57
114
Draft of 2010-11
Statement of Internal
Control
57
115 Analysis FINAL Cut ADJ 11 57
116 Update GL 57
117
Reconcile Final Cut
Programme Spend to final
TB/GL
58
118 BANK HOLIDAY 61
119 Provide final trial balance 62
120
Any further adjustment
journals prepared by
1pm
62
121
Cut off for all
adjustments for
validated reconciliations
62
122
Reconcile Final Cut
Programme Projects data
to final GL TB
62
103
123 Analysis for Programme
Note Final Cut ADJ 11 63
124 Produce Draft 2 63
125
Review reconciliation of
Cash Flow, Net Cash
requirement, Statement
of Changes in Taxpayer's
Equity
63
126
Distribute Second Draft
Accounts for
Management Review
64
127 Draft Accounts Review
Meeting 65
128 Draft of Departmental
Report to Auditor General 65
129
Forward copy of Revised
Draft accounts to Auditor
General
70
130 July's Balance Sheet
prepared 70
131 Auditor General Wash-up
Meeting 70
132
Audit Committee
Meeting to review SIC,
Corporate Governance
disclosures etc
75
133 Produce Management
Accounts for July 2011 75
134
Provision of regularity
audit opinion from
provided
78
135 Liaise with Auditor
General to agree wording 79
104
of letter of representation
136 Audit Committee
meeting 79
137
Any final adjustments
from Audit Committee
updated
82
138 Sign off Accounts & letter
of representation 85
139
Supply Auditor General
with manuscript copy for
AGs signature
85
140 AG sign-off 85
141
Any amendments on
proof signed off with
Comms. Team
88
142
Lay & Publish
Departmental Report
including Resource
Accounts
92
143
Initiate Whole of
Government Accounts
(EPS) pack
93
ENDS
105
APPENDIX 10
“THE PUBLIC FINANCE PROGRAMME”: SUGGESTED GOVERNANCE STRUCTURE
My suggestions for the Governance needed to deliver this wide and challenging Programme
which I have provisionally called “The Public Finance Programme” are shown below. These
are subject to availability, some back filling of other workload and adoption of the
recommendations in this report.
Sponsors
HE The Governor, The Premier, The Deputy Governor
Programme Champion
The Deputy Governor
Steering Board
Deputy Governor (Chair),
Kenneth Jefferson, Franz Manderson, Ian Fenton, Sonia McLaughlin, Peter Gough
Programme Director
To be recruited / determined
(I have indicated a willingness to be considered for the earlier phases)
Project Team
(In alphabetical order of surname)
Andy Bonner
Vincent Chinsee
Ronnie Dunn
Delores Gordon
Martin Rubens
106
Dr Stephen Sewell
Matthew Tibbetts
Debbie Welcome
And probably someone from Health (Carol the CFO?)
Other Resources
David Thomson (pwc)
Other contractors
Private Sector representative(s)
ENDS
107
APPENDIX 11 - TERMS OF REFERENCE
REVIEW OF THE FINANCIAL AND HUMAN RESOURCE MANAGEMENT SYSTEM OPERATED
BY THE CAYMAN ISLANDS GOVERNMENT
TERMS OF REFERENCE
Background
Over the last eight years the Cayman Islands Government has implemented a significant
reform of its financial and personnel management system. The key features of Cayman’s
new public management system are:
• Explicit focus on results (Outputs and outcomes)
• Improved financial measurement (Accrual accounting)
• Improved transparency (Regular forecasting and reporting)
• Improved accountability
• Greater delegation of input authority to managers (HR & Finance)
The mandate for this reform is provided by the Public Management and Finance Law 2001
(PMFL)which came into force for the 2003/4 financial year and Public Service Management
108
Law, 2005 (PSML) which came into force on 1 January 2007. Both laws are supported by the
relevant regulations namely the Financial Regulations and the Personnel Regulations. The
laws and regulations have been updated on a regular basis and most recently to reflect the
new Constitution Order 2009.
The laws and regulations are supplemented by policy and procedure manuals.
The financial reform also affects statutory authorities and government companies who form
part of a consolidated set of financial statements, the relationship with central government
is also formalised through ownership and purchase agreements.
The financial and personnel systems are facilitated through a series of application
programmes run on an Oracle operating system named IRIS (Integrated Resource
Information System)
A key aspect of the reform is the decentralisation of personnel and financial decision-
making authority to civil service managers; a move away from a centrally controlled
Personnel Department and Treasury. This was designed to provide managers with greater
control over their human and financial resources and allow effective accountability of
managers for the performance of their organisations. However, to ensure appropriate
decisions are made, managers are required to operate within a set of substantive and
procedural parameters established in the laws and regulations.
There has been some concern expressed at the political and executive level and in the public
arena that the demands of the reforms, particularly the reporting requirement, are too
great and are not achievable. This is evidenced in part by the lack of audited financial
statements that have been tabled in parliament and the lack of timely financial
management information available is considered a major problem
Purpose and Scope of Review
The purpose of this review is to assess the efficiency and effectiveness of the financial and
human resource performance management system and to provide independent view to the
109
Cayman Islands Government on the issues and problems that you identify and to make
recommendations for change. The consultant is expected to interview a selection of
stakeholders to ensure the report reflects their diverse views e.g. Ministers of Cabinet, Chief
Officers, Chief Financial Officers, Internal and External Audit staff, Ministry of Finance Staff,
Chairman of Public Accounts Committee, and Heads of Departments etc. The Cayman
Islands Government will provide a list of names.
Outputs from the review
1. Report on the level achievement of the strategic aims and objectives of the financial
and personnel reforms and recommendations for any changes in strategic direction.
2. Report on the effectiveness of the mechanisms (laws, regulations and policies) to
achieve the stated objectives and recommendations for change.
3. Review the effectiveness of the IRIS system to support the financial and personnel
reforms and make recommendations for changes.
4. A suggested plan for making the changes identified in 1, 2 and 3 above.
Reporting
The output of the review is a report to the Cayman Islands Government, namely the
Governor, Premier and Deputy Governor containing outputs 1 to 4 above. A progress report
will be required after the initial meetings and research have been undertaken
Timescales
It is anticipated that the draft report will be presented by the 4th March 2011.
110
APPENDIX 12
BIBLIOGRAPHY AND REFERENCES
[1] Special Report of the Auditor General on the State of Financial Accountability
Reporting April 2008
[2] Special Report of the Auditor General on the State of Financial Accountability
Reporting (Update) April 2010
[3] Report to the Cabinet on the Review of the Public Management and Finance Law
(2005 Revision) April 2006
[4] Financial and Performance Reporting: General Report of the Auditor General 2010
[5] Cabinet Paper (Tuesday 1st February)
[6] Annual HR Report 09/10
[7] “Examining the Impact of the Financial Management Initiative on the Performance
and Culture of Government Agencies in the Cayman Islands Government” by Wesley
Howell MBA Dissertation 2007
[7] Hansard Transcript of Private Member’s Motion 11/09-10 (25th March 2011)
[8] Miller/Shaw report – James Miller and David Shaw February 26th, 2010
[9] Workshop Briefing: Financial Management Reform, Accrual Based Output
Management Seminar 24-26 May 2005
[10] 2011/2012 Strategic Policy Statement, 23rd November 2010
[11] 2009/10 Annual Plan & Estimate
[12] 2009/10 Annual Budget Statement
[13] 2009/10 Purchase Agreements
[14] 2009/10 Ownership Agreements
[15] Central Tenders Committee – Open Tender Process
[16] Public Management & Finance Law (2010 Revision)
[17] Public Management & Finance Law (2010 Revision): Financial Regulations (2010
Revision)
[18] Public Service Management Law (with 2010 Amendments)
111
[19] PSML (with 2010 Amendments): Personnel Regulations (and 2010 Amendments)
[20] Cayman Islands Government Organisation Chart
[21] “Report of the Committee to Review the Public Service Management Law and
Personnel Regulations” August 2008
[22] “Public Management and Finance Law Review” 2008 Unpublished / Incomplete
[23] “New Zealand's Public Sector Management Reform: Implications for the United
States” Graham Scott; Ian Ball; Tony Dale
Journal of Policy Analysis and Management, Vol. 16, No. 3, Special Issue: The New
Public Management in New Zealand and beyond. (Summer, 1997), pp. 357-381.
[24] Caymanian Compass – Daily Newspaper
[25] Cayman News Service – On-line commentary
Plus Miscellaneous web sites and other ephemeral materials.
END
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APPENDIX 13 List of those Groups and Individuals Interviewed (In rough chronological order) Name Position Dept/Portfolio/Ministry Peter Gough Strategic Advisor Deputy Governor Ian Fenton Acting Chief Officer Portfolio of the Civil Service H.E. Duncan Taylor Governor Donovan Ebanks Deputy Governor Kenneth Jefferson Financial Secretary Will Pineau CEO Chamber of Commerce Michael Nixon Finance Ann Owens Finance Cabinet Introduction Delores Gordon Chief Internal Auditor Andy Bonner Head of HR Audit PoCS Alastair Swarbrick Auditor General Office of the Auditor General and Deputies Vinton Chinsee CFO Matthew Tibbetts CFO Ronnie Dunn Director Budget & Management Unit Gilbert McLaughlin Director Computer Services IRIS Team 4 staff Computer Services Debbie Welcome Accountant General EPS Consolidation Team PFML Review PoCS Kendell Pierre Partner KPMG Dara Keogh Director KPMG Kurt Tibbetts MLA Alden McLaughlin Leader of the Opposition Jennifer Dilbert Information Commissioner Jan Liebaers Deputy Information Commissioner CFO Forum Group Meeting Nick Freemen Partner PWC Ernie Scott District Commissioner, Cayman Brac & Little Cayman Plus staff and visit around Cayman Brac Mary Rodrigues Chief Officer Ministry of Education, Training & Employment Jennifer Ahearn Chief Officer Ministry of Health, Environment, Youth, Sport & Culture Haroon Pandohi Director Planning Department Linda Evans Chief Immigration Officer, Immigration Department Stephen Brougham Deputy Commissioner of Police, Royal Cayman Islands Police HR Forum Group Meeting Maria Zingapan Director Economics & Statistics Unit Kevin Lloyd Partner KPMG Dan Scott Partner E&Y
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Orrett Connor Cabinet Secretary Cabinet Office and Tim Mark Scotland Minister Ministry of Health, Environment, Youth, Sports & Culture Colin Ross Chairman Appeals Commission Fabian Whorms CEO Cayman Airways Plus CFO and COO Board Members Cayman Airways Alan Jones Director Lands & Survey Tim Adam and Team Managing Director Turtle Farm Franz Manderson Chief Officer Internal & External Affairs Ezzard Miller Chairman of PAC MLA Sheena Glasgow Postmaster General Postal Services Duncan Taylor H.E. the Governor Cayman Islands Government McKeeva Bush Premier Donovan Ebanks Deputy Governor Eric Bush Deputy CO Portfolio of Internal & External Affairs Jude Scott CEO Maples & Calder Alistair Swarbrick Auditor General Auditor General’s Office James Watler President CISCA Plus Members of Management Council Cabinet Presentation Tuesday 4th Week Hon. Rolston Anglin Minister Ministry of Education, Training & Employment Sonia McLaughlin Deputy Financial Secretary, Chief Officer (Public Finance)
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APPENDIX 14
SELECTED GLOSSARY OF ACRONYMS (In alphabetical order)
AG Auditor General
CFO Chief Financial Officer
CO Chief Officer
EPS Entire Public Sector
FMI Financial Management Initiative
GAAP Generally Accepted Accounting Principles
HE His Excellency
HoDs Heads of Department
IAS International Accounting Standards
IFRS International Financial Reporting Standards
IPSAS International Public Sector Accounting Standards
IRIS Integrated Reporting and Information System
LA Legislative Assembly
OAG Office of the Auditor General
PMFL Public Management and Finance Law
PSML Public Service Management Law
SA&GCs Statutory Authorities and Government Owned Companies
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APPENDIX 15
ABOUT THE AUTHOR
Keith Luck, Former Director General Finance
Foreign & Commonwealth Office
Until December 2010 Keith Luck was Director General Finance and a Main Board Member of
the FCO, the UK Government Department which furthers the UK’s interests overseas. With
a net budget of £1.9bn, the FCO runs a global network comprising over 260 posts and
missions in 145 countries, employing around 6,000 UK-based staff and 10,000 staff who are
locally engaged.
Keith oversaw the work of four Directorates; Finance; Estates and Security; FCO Services and
Corporate Services. He was Board Champion for Sustainability and Flexible Working, and
had been particularly active in promoting flexible working both at home and overseas, for
UK based and LE staff.
Keith joined the FCO on 2 Jan 2007 from the Metropolitan Police. He was Director of
Resources at the Met with responsibility for all finance and resource functions, including
property, procurement, transport and corporate services (except HR and IT), in what is
London’s biggest employer with 52,000 staff and a budget of £3bn.
Keith also has experience of working in the telecommunications, consultancy and banking
sectors, switching between the public and private sector throughout his career.
Keith is a life-long supporter of the Chartered Institute of Management Accountants (CIMA)
where he was a prize-winner in a number of his exams. He was appointed a Fellow in 1993
and in 2006 he was co-opted onto CIMA’s Council where he is also a member of their
International Development Committee (IDC).
Keith is the Consultative Committee of Accountancy Bodies’ (CCAB) delegate to the
Professional Accountants in Business (PAIB) Committee of the International Federation of
Accountants (IFAC).
In 2004, Keith was voted as CIMA’s ‘Business Leader of the Year’.
ENDS