Turks and Caicos Islands 2012

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Actual primary expenditure deviated from the originally approved budgeted primary expenditure by more than 15% in only one of the past three years. It deviated by 15.8% in 2008-09, by 5.0% in 2009-10 and 5.6% in 2010-11. (p. 24)

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The overall variance in expenditure composition exceeded the overall deviation in primary expenditure by more than 10% in two of the past three years. Additional variances observed were11.3% in 2008-09, 8.5% in 2009-10, and 29.7% in 2010-11. (p. 25)

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No provision was voted to the formally established Contingency Fund during the period of this report, and there were no reallocations from it. (p. 25)

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Actual domestic revenue as a percentage of originally budgeted revenue) was 76.1% in 2008-09, 69.3% in 2009-10, and 80.1% in 2010-11. (p. 26)

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The stock of expenditure payment arrears, which may have exceeded 20 per cent of annual expenditure in 2009-10, has now been reduced to 5 per cent or less, and arrangements are in hand to pay these off once the exact amounts have been determined. (p. 27)

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Substantially complete data on the stock of arrears is available monthly and annually, although not all amounts are yet precisely known. (p. 27)

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The budget system is based on consistent administrative and economic classifications that broadly reflect COFOG/GFS 1986 standards, but a functional classification of expenditure is lacking, and some expenditures are not treated consistently from one year to the next. (p. 28)

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Budget documentation fulfills 4 of the 9 benchmarks. Prior year’s budget out-turn, presented in the same format as the budget proposal Yes The detailed estimates provide actual expenditure for the prior year. Current year’s budget (revised budget or estimated out-turn) , presented in the same format as the budget proposal Yes The detailed estimates provide original budget estimates and projected expenditures for the current year. Summarized budget data for both revenue and expenditure according to the main budget heads of the classification used, including data for current and previous year Yes Revenue and Expenditure are summarized by economic classification for prior year actual, current year approved. Explanation of budget implications of new policy initiatives, with estimates of the budgetary impact of all major revenue policy changes and/or some major changes to expenditure programs Yes Budget statements have included indications of the expected impact of new revenue measures, etc. (p. 28)

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Unreported extra-budgetary expenditure has been a problem in recent years as a result of the uncontrolled incurring of arrears, in many cases without provision having been included in annual budgets. Most of these have now been identified and paid off, although there are still (October 2011) some outstanding amounts, particularly where the government is liable to make payments to the National Health Insurance Board in respect of people whose treatment is outside the National Health Insurance Plan.. Budgets for the intended expenditure by Statutory Boards (including the National Insurance and National Health Insurance Boards whose expenditure and contribution income correspond to about 20 per cent of current total Budget expenditure) have not generally been published, and many of the smaller bodies are several years behind in presenting end-year financial statements. There is no sign of any “quasi-fiscal” expenditure (e.g. concealed subsidies paid through state-owned enterprises, or directed bank lending at lower than market interest rates). (p. 29)

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Economic and financial information on projects funded by external loans and grants is included in the Estimates and Financial Statements , although the out-turn figures often bear little relation to the Budget Estimates. (p. 30)

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Section 62 of the Finance and Audit Ordinance requires that all Statutory Boards receiving public funds should have their annual financial statements audited by the Chief Auditor or by a private sector auditor under his direction. Repeated questions have been raised about the accounting arrangements, employment policies and cost controls of many of these bodies, some of whose operations (notably TCInvest) represent a significant fiscal risk to the Government. No steps have yet been taken to establish consistent monitoring of these bodies, a number of which are several years late in presenting annual financial statements. But it has been agreed that the CEO’s Office should take on this responsibility and recruit appropriately qualified staff to meet it. (p. 30)

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The government makes available to the public (in a complete form) 3 of the 6 listed types of information, namely, the annual budget documentation, external audit reports and contract awards. In addition some information is available about annual financial statements and resources for primary service units (see Table 3.6). (p. 30)

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Before the recent fiscal crisis an understanding about the normal budget calendar had been established through custom and practice, but it was never enshrined in primary or secondary legislation. No Budget was prepared for 2009-10 until after the Constitution had been suspended in August 2009. For 2011-12 the earlier stages of budget preparation failed to establish a sufficient understanding of the constraints of the situation, with the result that MoF’s final Budget Memorandum gave spending Ministries only a very short time to prepare submissions including scenarios providing for reductions in expenditure of up to 30 per cent. (p. 32)

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Recent Budgets have been essentially the work of MoF, with only limited consultation with the spending Ministries. This is in part a reflection of their very limited capacity to undertake financial planning and thus respond constructively to MoF requests. The final MoF Circular issued in the context of the preparation of the 2011-12 Budget did not include ceilings for the expenditure of each Department. (p. 32)

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The Governor has approved the annual budget estimates within two months of the start of the last two financial years, but in the previous year the budget was not settled until nearly half the year had passed. (see Table 3.7) (p. 32)

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No multi-year fiscal forecasts and functional allocations have been produced since 2008-09. (p. 33)

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A debt sustainability analysis was undertaken in 2010 by consultants on behalf of the Government. (p. 33)

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No sector strategies with multi-year costings of current and investment expenditure have been prepared since the suspension of the Constitution in 2009. The government’s Medium Term Socio-economic Development Framework published in 2008 contains statements of objectives for the development of public services, but no quantitative indications how these would be achieved. (p. 33)

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Budgeting for investment and recurrent expenditure remain separate processes without the recurrent cost implications of newly completed capital projects being taken into consideration in a medium term horizon. (p. 33)

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Legislation and procedures for the numerous different taxes, fees and charges are reasonably clear, but very extensive non-transparent tax concessions and incentives are in operation, which undermine the comprehensiveness and fairness of the system. (p. 34)

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Revenue collection is very fragmented, and the user-friendliness towards the taxpayer performance of the different collecting authorities varies. The number of different taxes and charges, some of which have to be paid monthly, is such as to represent a considerable challenge to the taxpayer to comply with all of them. (p. 34)

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Arrangements exist for administrative appeals (ultimately to the Permanent Secretary Finance, advised by the Attorney-General) against customs and some other tax assessments, but little use is apparently made of them. Further appeals could then follow to the Magistrate’s Court, but again there is no recent experience. Most revenues depend on the taxpayer approaching the collecting authorities to pay amounts which are clearly established. Plans for the introduction of VAT include provision for an independent appeals machinery. (p. 34)

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Separate databases are maintained for each of the different taxes and charges, with no links between them. Very few resources are available for enforcement. (p. 35)

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Customs devote some effort to risk-based inspection, and the MoF Revenue Control Unit addresses some target areas, notably Accommodation Tax but also including payments due from developers to support the costs of scholarships. But few resources are available for audit and investigation across the whole range of fees and charges. (p. 35)

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There are penalties in some areas (e.g. customs, accommodation and telecommunications taxes) for non-compliance, but there are very few resources for enforcement e.g. of the requirements for business licences, and arrangements do not appear very effective across the wide range of different fees and charges. (p. 35)

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There are no significant identified arrears in TCI’s main budget revenue streams (taxes on imports, accommodation tax and stamp duty on land transfers).which together account for about two-thirds of budget revenues. Other revenue streams (e.g. vehicle and business licences) depend on annual payments at the initiative of the taxpayer, where there is no question of the authorities identifying arrears without investigation of the reasons for non-renewal. It appears that there are arrears of national insurance and national health insurance contributions, which are outside the Budget; in the case of health contributions failure to collect amounts due results in the need for additional expenditure impacting directly on the Budget. (p. 35)

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All revenue is banked daily by its collectors for the credit of the Treasury. But where cheques are involved, it may take up to 3 days before they are cleared and the funds reach the Treasury accounts. (p. 36)

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Reconciliations are carried out quarterly by MoF Revenue Control Unit and Customs in respect of the individual payments which make up the two thirds of total revenues for which they are responsible. As explained above there are no situations in which assessments are made by the authorities which could serve as a basis for the identification of arrears. These arrangements for reconciliations in respect of the main revenue streams would arguably support a B rating, but since it has not been possible to obtain assurance that other revenue streams are similarly reconciled a C rating is proposed. (p. 36)

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MDAs are permitted to make forward commitments within the limits set by the expenditure provision on each budget line, but must plan on the basis that total payments in any given quarter should not exceed the amount released to them for that quarter. (p. 37)

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During the situation of fiscal crisis MDAs have repeatedly been asked by MoF during the course of the year to reduce their expenditure below previously approved levels. The need for these adjustments has generally been well understood within the Government, although the resulting reductions have not been published. (p. 37)

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Cash flow planning and monitoring are the responsibility of MoF Treasury and Budget Departments. A cash flow forecast is prepared for the fiscal year and updated and reported monthly on the basis of actual cash inflows and outflows. (p. 37)

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Records of government debt are complete, updated and reconciled on a monthly basis. But the monitoring of contingent liabilities has been inadequate. (p. 38)

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All TCIG cash balances, including those in respect of which separate accounts are maintained, are consolidated in the Treasury’s main accounts at Scotia Bank and FCIB. (p. 38)

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The Borrowing Guidelines agreed with the UK government serve as a framework within which debt management should be conducted and loans and guarantees contracted.. Loans and guarantees are effectively controlled by MoF. But debt management policy has not been clearly specified in terms of targets for the government’s overall fiscal balance. (p. 38)

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A centralised personnel database is maintained for all established staff by the Office of Public Services Management OPSM), which is integrated with the MoF payroll database which underpins all wage and salary payments, including those to unestablished and casual staff. (p. 39)

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Only OPSM can make changes to individuals’ records which in turn govern their pay. The large bulk of any changes are made in time for the next operation of the payroll, so that only a few retrospective adjustments need to be made. (p. 39)

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Changes to the personnel records of all staff have to be justified and documented in order to receive approval from OPSM. (p. 39)

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A full audit has been carried out of the entire government payroll, designed to test the reality of individual’s appointments and ensure that there are no ghost workers. But ongoing arrangements have yet to be made to ensure that the present satisfactory situation is maintained in the years ahead. (p. 39)

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The statutory basis for government procurement is clear, and the texts of the relevant principal and subordinate legislation have been published. The Financial Instructions issued by MoF under the Finance and Audit Ordinance 1980 require all contracts above a threshold value (currently $75,000, but due to be reduced to $15,000) to be let through an interdepartmental Tenders Board, with open tendering the default method. Restricted tendering or single source procurement is permitted when circumstances require and subject to the approval of the Executive Council/Governor. Invitations to tender are published in the press, and contract awards are published in the Official Gazette. But the regulations do not apply to procurement by Statutory Boards, there is no publication of government procurement plans, and there is no specific provision for any independent review of procurement complaints. Three of the six benchmarks are satisfied. (p. 39)

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During the recent period of financial stringency there has been little scope for letting of contracts. All 10 contracts above the threshold let in 2009-10 (with a total value of about $790,000) were let by open tender. 38 of the 40 contracts (total value about $2,850,000) let in 2010-11 were let by open tender; the remaining two, representing less than 5 per cent of the total value of the contracts, related to specialised technical assistance for the installation of the ASYCUDA World Customs system which could not have been procured elsewhere. (p. 40)

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Full information is provided about bidding opportunities and contract awards, but there is no advance publication of procurement plans or of any information about the results of procurement complaints. (p. 40)

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In order to score higher than D, there must be a procurement complaints machinery involving both independent professionals and representatives of civil society, who are independent of the contract awarding process. No formal arrangements have been made for dealing with procurement complaints which cannot be resolved administratively. There being no body established to consider procurement complaints, whether or not independent of the authorities responsible for procurement, neither of the first two benchmarks is satisfied. MoF stated that if a complaint arose which required some independent adjudication, it would be referred by the Attorney- General to the UK lawyer with experience of TCI affairs who is retained by the TCI government. But there had been no recent experience of this procedure, which is informal rather than statutory. Although this procedure could be seen as professional and independent, and as not requiring complainants to pay heavy fees, there is no local involvement of people from outside government. Moreover no rules have been specified to determine the procedures to be followed, the timeframe within which the work would be done, or the authority of any decisions or recommendations by the adjudicator. (p. 40)

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The Smartstream commitments control module is now (as of April 2011) fully operational, and both spending Ministries and suppliers should understand that government orders should only be accepted if the approved Purchase Order form is used, which shows that the commitment has been registered with MoF and is not inconsistent with approved budgetary provision. Orders would be rejected if the amounts involved exceeded the funds available on the relevant budget line. No commitment control system can be entirely proof against suppliers accepting orders which have not been registered with MoF and which are not provided for in budget Estimates. But the personal responsibility of Accounting Officers for preventing such irregularities, and the risks suppliers face of delay or non-payment of their eventual invoices should ensure that most commitments are captured. (p. 41)

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Basic internal control rules and procedures exist for initiating, processing and recording transactions, which are currently generally understood and respected by those involved. But there remain risks that activities and intentions may be held back by administrative inefficiency and delays. The authority of the finance function could usefully be strengthened when detailed regulations are made about the way in which the new FAO currently being prepared should be applied. (p. 41)

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Compliance with existing rules for processing and recording transactions appears now to be satisfactory. But the experience up to 2008-09 illustrates the risk that rules may be flouted by decision of those in authority. Although the payments process is operating satisfactorily, it is not yet clear that the culture of accepting non-observance of the rules, e.g. in the making of transparent arrangements for in-year budget changes and reallocations, has been completely eliminated. (p. 41)

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No internal audit work is currently carried out as a regular activity in the TCI public service. (p. 42)

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In the absence of the function there are no reports to be considered. (p. 42)

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There is no question of a management response where the function does not exist. (p. 42)

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Bank reconciliation for the main Treasury-managed bank accounts takes place at least monthly, at aggregate and detailed levels, usually within four weeks of end of period. (p. 42)

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Reconciliation and clearance of suspense accounts and advances take place at least annually, but there may be delays in clearing suspense accounts, and some minor advances remain uncleared. (p. 43)

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Full information is given in the Budget about resources for individual secondary schools. Aggregate data is presented about primary schools and health clinics. In a very small community such as is TCI information about the resourcing of primary schools and health clinics can always be obtained through direct enquiry from the responsible departments. (p. 43)

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Comparison between budget estimates and actual out-turns of revenue and expenditure is possible by administrative unit and economic classification. The reports include full information also on capital receipts and development expenditure. Information is presented in terms of cash receipts and payments, but the current requirement for the CFO’s specific authorisation for all payments of $5,000 or more, coupled with the capture in SmartStream of all Purchase Orders, makes it possible to track commitments and thus provides an important element in the detailed monthly forecasts of payments on each budget line up to the end of the current financial year. (p. 43)

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In-year budget reports covering all items of revenue and expenditure, are prepared on a monthly basis, and generally issued before the end of the following month. (p. 43)

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There are no major concerns about accuracy and consistency of financial data amongst the various fiscal reports. (p. 44)

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Although the FAO currently in force requires a consolidated set of government Financial Statements to be prepared annually for TCI, this has not yet (November 2011) been done for any year later than 2006-07. The Statements should cover revenue, expenditure, bank account balances and the stock of other assets and liabilities. (p. 44)

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The Financial Statements for 2009-10 have only very recently (November 2011) been submitted for audit. Audit of the Statements 2007-08 and 2008-09 Statements, which were submitted in September 2011 is not yet complete. (p. 44)

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International accounting standards have not yet been fully applied. The financial statements have in the past been presented in a consistent format, with some disclosure of the standards used. (p. 45)

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A comprehensive audit of the government’s Financial Statements is carried out every year, together with a range of specific audits which include some Value for Money (VFM) examinations. These include supervision, and in some cases performance, of the audit of Statutory Boards. Auditing standards are adhered to. But the extent of detailed audit is currently constrained by the reduction in the resources allocated in the Budget for this purpose. (p. 45)

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Audit reports have recently been submitted to the Governor within 3 months of the receipt of the financial statements from MoF. This was the case in respect of 2006-07, the most recent year for which audited statements have been published. It has not been the fault of the auditor that recent Financial Statements have been produced so long after the event. (p. 45)

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Evidence from the Audit Office indicates that many recommendations, especially in the context of VFM work, receive a positive response from the bodies audited, and that the situation has improved since the suspension of the Constitution in 2009. (p. 46)

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There is currently no functioning Legislature. (p. 46)

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No such procedures are currently in operation. The Consultative Forum which currently fulfils some of the functions of a legislature declined to consider the 2011-12 Budget because it was given so little time to do this. (p. 46)

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In present circumstances, when there is no legislature, this dimension is not applicable. (p. 46)

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The currently applicable FAO requires Supplementary Estimates to be submitted for approval by the legislature (in present circumstances this means the Governor) when provision on any subhead in the Budget proves inadequate The Permanent Secretary, Finance is authorised to allow funds to be moved from one line to another within a subhead, but such virements are required to be reported without delay to the Legislature/ Governor and thereby published. These requirements were ignored by the elected government in the period up to 2009, and the interim administration has not yet taken any steps to formalise and make transparent in-year changes in budgetary allocations. (p. 47)

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No such examination currently takes place. No reports were considered by the Public Accounts Committee of the House of Assembly during the 18 months before suspension of the Constitution, and no reports were made by the PAC to the House in recent years. (p. 47)

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There was no functioning Legislature during the reference period. (p. 47)

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There was no functioning Legislature during the reference period. (p. 47)

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Actual receipts fell more than 50% short of Budget Estimates in two of the last three years. (p. 48)

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There is no schedule of donor disbursements by quarters. DfID assistance to post-hurricane reconstruction was paid in instalments as work under TCI control was executed. (p. 48)

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Project aid has generally been a response to hurricane disasters, and decisions have not had regard to the timing of Budget preparations. Prospective payments have been the subject of prior agreement between the donors and TCI, but the amounts have not been determined up to 15 months in advance as would be required to meet the Budget calendar. TCI has controlled the actual timing of project execution and thus the timing of claims for reimbursement or further advances. (p. 49)

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The direction of reporting is from TCI to the donors. The actual payments by the donors serve as the disbursement reports. (p. 49)

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All activity in TCI financed by external grants or IFI loans is fully accounted for through the Budget, and uses TCI procurement, payment and reporting procedures. In the cases of EU and DFID assistance directed towards a specific purpose (the repair of hurricane damage), a separate audit has been required. The overall average use of TCI procedures is therefore at least 75 per cent. However, since the amounts of project aid subject to this requirement have recently been large relative to payments of budget support, the overall average use of national systems will not have reached the 90 per cent required for an A rating. (p. 49)