Board of Financial Supervision advises investigation into BTP-management

POSTED: 09/1/14 9:51 PM

Annual account 2010 Bureau Telecommunication and Post still not verified

St. Maarten – The board for financial supervision (Cft) advises the government to have the General Audit Chamber or the government accountant bureau Soab investigate the annual account and the management at the Bureau Telecommunication and Post (BTP). “The situation at BTP is worrisome because the annual account of 2010 has not yet been verified and the legally mandatory contributions to the government are in arrears.

The Cft writes this to Finance Minister Martin Hassink in a reaction to the second execution report 2014. The financial supervisor notes that revenues from government entities are disappointing. This is especially the case for the performance of BTP where revenue for the first half year is 2 million guilders below expectations. Casino fees (1.3 million guilders) and license fees from the Central Bank of Curacao and Sint Maarten (2.2 million guilders) are also lagging.

Revenue from telecom concessions (2.5 million guilders) partially compensates these setbacks.

Overall however, revenue over the first half year is up by 3.25 million guilders. This is largely due to a positive development in the profit and income taxes and excise duties (3.5 million, and according to the execution report 3.9 million by the end of the year).

The Cft warns in its letter that these are largely windfalls from 2013 – a result from catching up with arrears – and that they are therefore not of a structural nature.

In non-tax revenue, there are setbacks for permits (1.1 million) and government entities (1.1 million). Together these setbacks threaten to add up to 4.9 million by the end of the year.

The government budgeted too high for work permits, and the income from this source needs to be adjusted downward by 3.5 million guilders. Income from residence permits is also lagging, but this could still be repaired during the remaining months of the year, the Cft writes. Windfalls in the income from building permits and business licenses compensate these shortfalls for a large part.

The Cft remains concerned about setbacks to the tune of 3 million guilders caused by personnel costs, especially overtime pay.

The ministries have exceeded the 2.4 million budget for overtime pay in the first six months by 4.3 million guilders. The prognosis is that the overtime pay will exceed the budget by 7.8 million by the end of the year. The Cft points out that this amounts to 325 percent.

“This begs for an acute analysis and approach of this issue. The measures that have been identified in the 2014 budget to cut personnel costs and healthcare costs are not being executed, or they are not fully executed,” the Cft writes.

The financial supervisor projects that the costs for personnel and healthcare will exceed the budget this year by 25 million guilders (13 million for personnel costs and 12 million for healthcare).

There are also deficits in the SZV-funds and the budget does not take compensation of these deficits into account. By the end of the year, the deficit will be 45 million. The Cft states that the government also has to find a solution for the payment arrears to the SZV. “Handling these arrears will be an important issue in assessing the 2015 budget.”

The financial supervisor also points out that the harbor is behind with the payments of its concession fees, even though the government expects to collect these fees in full. The government bought off the Gebe concession fees in 2013 for the years 2014-2016 and they have been accounted for in the 2013 budget. “The annual 5 million-guilders concession fee of Gebe was going to be compensated by skimming the so-called water reserves, but the Cft has not seen that come back in this execution report.”

The execution of the capital account is far behind budget, the Cft states in its letter. The main reason is that intended investments do not materialize. “Of the budgeted 205 million guilders only 28 million has been implemented. This reinforces our earlier conclusion that the capital account is not realistic and that the absorption capacity in terms of the civil service and the economy is unable to handle such a volume.”

The Cft furthermore points out that the government has to include 66 million guilders in the capital account due to court rulings and to making commitments that were not in the budget. The budget amendment set up for this purpose has not been handled by the parliament yet.

There is also some good news: the country’s liquidity position – 36 million in the first quarter – has jumped to 139 million guilders, a significant improvement. “This improvement is largely due to three loans that were effectuated in the second quarter. A large amount of these loans is earmarked for capital investments, but 45 million has been added to the reserves and signifies therefore a structural improvement of the cash position.”

At the end of June, the country had 240 million guilders on the books in payment arrears. “This volume is a serious risk for the government’s financial position and puts pressure on the SZV and the APS as the most important creditors.”

The 2015 budget could run into quite some trouble with the Cft, because, the letter states, so far the solutions the government proposed in the 2014 budget have hardly been substantiated. The financial supervisor asks therefore for a substantiated status report about the purchase, completion, sale and leaseback of the new government administration building as it relates to pension fund APS. The Cft also wants a status report about the negotiations with SZV about a possible restructuring of a part of the outstanding debt. “As far as the Cft knows, the SZV has withdrawn the restructuring proposal in December 2012.”

The government reported to the Cft that it received 11.3 million guilders in invoices that still refer to 2013. “That way the deficit would increase significantly, and with that also the target for the deficit compensation in the 2015 budget,” the Cft warns.

As an addendum to the letter, the Cft attached an overview of the measures the government announced in the 2014 budget to curb expenditures for personnel and healthcare. These measures have not been implemented.

Suggested measures to get a grip on personnel costs were amongst others a vacancy stop, a salary-freeze, the elimination of periodical salary increases, the elimination of the automatic price compensation, non-payment for unauthorized absence and a making a comparison of salaries in the public and private sector.

In 2014 personnel costs are 200 million guilders – 43.6 percent of the total budget. “Throughout the organization there seems to be insufficient awareness of the absolute necessity to drive down the cost-level, and especially the personnel costs,” the Cft writes. “These measures require resolute positions from the government and consultation with lobby groups.”

To bring down healthcare cost, one of the options was to impose a 10 percent contribution on insured citizens, to exclude over the counter medication from compensation and to combat fraud by healthcare providers.

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