“(St. Maarten’s) Budget is not reliable”

POSTED: 12/23/11 1:27 PM

Pefa workgroup in report to Shigemoto

St. Maarten / By Hilbert Haar – Three years from now the Kingdom Council of Ministers will decide about ending or continuing financial supervision over St. Maarten. The country’s financial management is at this moment in a shambles according to a report the Public Expenditures and Financial Accountability workgroup Pefa sent to Finance Minister Hiro Shigemoto on October 11 of this year. This newspaper obtained a copy of the report that assesses the country’s financial management on 28 different indicators.

Finance Minister Hiro Shigemoto

The Pefa-scores range from A to D, whereby A is the highest possible score. The report gives none of the 28 indicators an A; on the contrary, the largest number of indicators, 23 in all, received a D or a D+-score, meaning that the financial management needs serious improvement in these fields. Two indicators (the setup of the budget and the completeness of information in the budget’s explanatory memorandum) received a B; one indicator (clarity of the taxation duty) received a C while two others (recording and managing bank balances, loans and guarantees and frequency and timeliness of closure and connection procedures) received a C+.

Pefa evaluated St. Maarten’s financial management divided over six areas: the budget’s reliability, completeness and transparency, budgeting according to policy, internal control over the budget’s execution, administration and external control.

Pefa notes that St. Maarten’s budget is “not reliable.” This is the result of a lack of a solid budgeting process.

“The basis for setting up a new budget is mostly the previous year’s budget and its realization, corrected for inflation and economic growth. This method has proven to be unreliable,” Pefa wrote in the report, adding that an assessment of the 2007-2009 budgets confirm this assumption.

The report points out that the budget’s transparency is “very limited” especially where the supervision of and the reporting by government entities is concerned.

“Important budget and accountability information is not timely or not at all available for the public.”

The link between the budget and government policy leaves a lot to be desired, the report shows. Pefa found that the Finance Ministry does not use a budget calendar or a framework letter.

“The budget is not approved on time and therefore it cannot be executed timely during the budget-year. Multi-annual projections remain the same for each year or they are only corrected for inflation and/or economic growth. This way these projections do not reflect intended government policies.”

Pefa also notes a missing link between investments and their multi-annual financial effects, like structural budgeting of maintenance expenditures.

Internal control and executing the budget also needs attention. Pefa wrote in the report that taxpayers are insufficiently informed about their rights and duties, and that the complete registration of taxpayers is not guaranteed.

“The receiver has non-integer files and a significant backlog in the collection of assessments.”

Loans are recorded in a spreadsheet during the budget’s preparation and there is no overview of the completeness of the country’s bank accounts. Procedures for contracting loans are not established within the organization; the same is valid for issuing guarantees. The salary and the personnel administration resort under two different ministries.

“There is no coordination between the two departments,” Pefa points out.

Another sore point is the fact that procedures for public tenders “are not put down in writing and they are also not complied with.”

The administration needs improvement as well. Pefa found that the financial administration works frequently with so-called suspense accounts and imprest accounts without adequate internal control mechanisms in place.

“The information about expenditures for education and healthcare is insufficient,” Pefa adds.

The annual accounts also leave a lot to be desired. The last approved annual account dates back to 2005, and the annual account for 2009 has not been completed yet. In its half-year report to the Kingdom Council of Ministers, the Financial Supervisor Cft wrote that this is due to the fact that the compiler of these annual accounts was refused repeatedly access to information at the receiver’s office.

St. Maarten also does not bother about the external control on its budgets. Until October 10 of last year the General Audit Chamber of the Netherlands Antilles was responsible for this supervision.

“Reports from the audit chamber were not handled in the Island Council and there was also no internal follow-up,” the Pefa notes.

St. Maarten’s Audit Chamber is not fully operational yet.

“The supervision over the budget by the parliament is limited to handling the budget in parliament,” the report states.

On a more optimistic note, the Pefa states that St. Maarten has announced corporate governance legislation “that meets international standards.”

“Compliance and supervision over that compliance could be improved. The Corporate Governance Council has not been fully institutionalized yet and therefore she is limited in the execution of her duties.”

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