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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 1 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 2 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 3 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 4 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. 5 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 6 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.

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