Financial supervisor severely criticizes St. Maarten

POSTED: 11/9/11 1:02 AM

“No access to Island receiver systems for compiler annual accounts”

St. Maarten / By Hilbert Haar – The Board for Financial Supervision Cft severely criticized St. Maarten in its semi-annual report that was discussed in the Kingdom Council of Ministers on September 9. Minister Piet Hein Donner sent the report to the Parliament of St. Maarten on September 20. This newspaper obtained a copy of the report yesterday.

The Cft reports that it received the annual account for 2009 and the balance sheet for that year only on March 10 of this year. The financial supervisor is “not positive” about these financial data, because the balance sheet does not contain a comparison with the previous year, making it impossible to follow the developments of different capital components. The reason for the missing 2008 information is, according to the devastating report, “that there are insufficient reliable figures for the previous financial year.”

The balance sheet is missing a profit and loss account, due to “the lack of reliable figures for the current financial year of 2009.”

This makes it impossible to assess whether the execution of the 2009 budget remained within the financial framework, the Cft wrote in its report.

But the harshest criticism concerns this: “There is a lot of uncertainty about the posts debtors and creditors because the compiler of the annual account repeatedly was refused access to the systems at the Island Receiver.”

Of the unpaid long and short term accounts receivable 82 percent is written off via a so-called provision. “The Cft is seriously concerned about the fact that the compiler of the annual accounts has not been able to get access to all available sources of information. It is even more surprising because both are parts of the same Ministry (of finance).”

The Cft points out that the annual account is “the natural final piece of the budget cycle and the ultimate document with which the government gives account t about its policy to the parliament.”

The financial supervisor repeats its serious concerns about the process of accountability in St. Maarten, “Because apparently not all necessary and available information is accessible for those who have to compile the annual account. The Cft find this very nasty.”

The financial supervisor is also highly critical of the system St. Maarten used to stay within the budget. Curacao fixed this problem by using windfalls from the debt relief program. But St. Maarten, the Cft wrote in its report, uses a system of liquidity control.

Departments are not allowed to make expenditures without the permission of the Council of Ministers, having heard an advice from the Finance Minister. Taking the availability of cash as the measuring stick devaluates the significance of the budget as control mechanism, the Cft states. “It must be possible at all times to execute everything that is part of the budget, irrelevant if there is enough liquidity available at that time,, as long as that liquidity becomes available at some moment during the budget year.”

If this is not the case, the Cft reported, the level of reality in the revenue projection becomes questionable – either because of a projections that was too optimistic, or because of insufficient collection.”

Liquidity control means that liabilities are moved to a later date, the Cft points out. “Then it puts pressure on next year’s budget, or invoices remain unpaid.”

Leaving bills unpaid affects the country’s assets because short term liabilities go up.

St. Maarten received an advance on the division of assets of the Netherlands Antilles in 2010 to solve its budget problems in that year. The Cft concludes that the liquidity control system shows that the government is often looking for “short term solutions that at the same time negatively affect the future financial position.”

The Cft notes that the 2011 budget process was as cumbersome as that for the previous year. One of the recommendations the financial supervisor did was to examine the minimum level of liabilities the country has to take into account from existing legislation. “St. Maarten gave the assignment for this examination to an external bureau. However, the report was insufficiently useful because it did not meet the requirements of the assignment.”

The report also relates the well-published stumbling blocks on the road towards the 2011 budget. Only at the very last moment did St. Maarten bow to the pressure to accept a lower projection for economic growth. The Cft considers the projections from the Central Bank as realistic, whereas St. Maarten used a much higher percentage for economic growth.

The Cft is positive about the decision to drop the decentralization of financial responsibilities to the departments. Instead, a ministerial regulation will define the procedure for contracting new financial liabilities. The regulation will be linked to a mandate registry that contains the names and the signatures of those who are authorized to contract financial liabilities and up to which amount.

The financial supervisor notes in its report that St. Maarten’s problems to present a balanced budget are for a large part due to “not having sufficiently qualified personnel.” The Cft advised St. Maarten to bring in a team of experts to help the finance department realize structural improvements. “In the past technical assistance from the Netherlands too often turned into extra hands to keep the department going; little came of structural improvements.”

But St. Maarten, the Cft writes in its report, does not want technical assistants. “St. Maarten has indicated that in the past it has not had positive experiences with technical assistant and that it therefore now does not want an external team of experts. St. Maarten is of the opinion that it must be able to do this by itself.”

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