2011 financial statements of the country of sint maarten · the 2011 financial statements of...
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2011 FINANCIAL STATEMENTS OFTHE COUNTRY OF SINT MAARTEN
Financial Compliance Review 2011:
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CONTENTS
SUMMARY !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!=
RECOMMENDATIONS !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!>
1! REGARDING THIS REVIEW !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!?
$<$! @:A/,.+B/ !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!?
$<"! C/D()!2E+&+2&F35(0/G25H !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!?
$<=! I/B+/G!23!2E/5(.+2&()!0(&(D/0/&. !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!J
$<K! I/B+/G!23!E2)+,L!+&3250(.+2& !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!J
2 ! FINANCIAL INFORMATION !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!$#
"<$! %'7+.!23!.9/!(&&'()!3+&(&,+()!1.(./0/&.1!:L!.9/!-@%M !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!$#
"<"! N55251!(&7!'&,/5.(+&.+/1!5/D(57+&D!3+&(&,+()!+&3250(.+2& !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!$$
"<O! N55251!+&!,2&./&. !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!$>
"<=! @E+&+2&!23!3+&(&,+()!+&3250(.+2& !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!$P
"<K! Q/3+,+/&,+/1!+&!:()(&,/!19//.!+./01 !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!$P
"<>! @E+&+2&!23!:()(&,/!19//.!+./01 !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"#
3 ! OPERATIONAL MANAGEMENT !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"$
O<$! RSM!T52D5(00/ !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"$
O<"! TN*%!R0E52B/0/&.!T)(& !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"=
O<O! U(V!5/B/&'/1 !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"K
O<K! @E+&+2&!23!3+&(&,+()!0(&(D/0/&.!(&7!0(./5+()!0(&(D/0/&. !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"P
4 ! POLICY INFORMATION !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"?
=<$! %B(+)(:+)+.L!23!E2)+,L!+&3250(.+2& !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"J
=<"! U9/!+0E25.(&,/!23!E2)+,L!+&3250(.+2& !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"J
=<O! @E+&+2&!23!.9/!E5/1/&.(.+2&!23!+&3250(.+2&!2&!E'51'/7!E2)+,L !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!"J
5 ! RESPONSE OF THE MINISTER OF FINANCE AND AFTERWORD OF GENERAL AUDIT
CHAMBER !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!O#
K<$! I/1E2&1/!23!4+&+1./5!23!*+&(&,/ !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!O#
K<"! NE+)2D'/!6/&/5()!%'7+.!89(0:/5 !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!O"
APPENDICES !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!OO
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BIBLIOGRAPHY !!<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<<!==
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SUMMARY
You have before you our report on the 2011 financial statements of Country Sint Maarten.
The 2011 financial statements of Country Sint Maarten relate to the period from October
10, 2010, through December 31, 2011, and represent the first set of financial statements
of the new country of Sint Maarten. In this report, we present our findings of the financial
compliance review of the financial statements and operational management of the
ministries of Sint Maarten.
Our statutory duties are described in article 23 of the National Ordinance on the General
Audit Chamber of Sint Maarten (hereafter termed Lv AR) and in article 74 of the
Constitution. In the context of these statutory tasks, we have assessed both the financial
management and material management of the ministries of Sint Maarten. Furthermore, we
have investigated whether the information related to the finances of the ministries as well
as the operational management and approved policy has been arrived at in accordance
with the applicable rules and has been accurately reflected in the annual financial
statements. In accordance with article 25 of the Lv AR, we have chosen to use the findings
of the Stichting Overheidsaccountantsbureau (SOAB), based on their audit of the 2011
Financial Statements.
The most important conclusions of our review of the 2011 Financial Statements of Sint
Maarten are:
1. The financial information does not satisfy the requirements of the National Government
Accounting Ordinance (Comptabiliteitslandsverordening -CV) and the Lv AR:
- The 2011 financial statements have not been drawn up in timely fashion by the
Minister of Finance and provided to us. Due to the fact that the 2011 financial
statements were provided to us more than ten months late, it is not possible for
Parliament to take into account our opinion and recommendations in assessing and
approving the 2013 Budget for Sint Maarten.
- The information related to balance sheet items does not provide a reliable view of
the scope of all budget line items due to the many uncertainties of various budget
line items. The explanations provided are also insufficient to allow for proper
insight.
2. Operational management is not ‘under control’:
- In the year 2011, the financial management of Country Sint Maarten was not in
order. There was inadequate internal control procedures noted at all ministries. As
a result the annual financial statements include numerous errors and uncertainties.
- The various improvement plans with regard to financial management have not
been implemented by the Council of Ministers and have experienced delays due in
part to a shortage in capacity. The improvement plans have also not been provided
to Parliament.
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- Government did not take adequate measures to increase tax revenues in 2011.
There were too few internal policy rules and norms present to insure an
improvement in the functioning of the tax levy and collection organization and the
introduction of a simplified system.
- The lawfulness of personnel expenditures at the ministries in the year 2011 could
not be established due to missing, incomplete, late and poorly structured
personnel files.
- Only 45% of the personnel (as of 2011) were registered at the pension fund. The
fact that none of the most relevant organizations (General Pension Fund of Sint
Maarten and the Ministries of Finance and General Affairs) can provide insight into
the scope of the problem or the financial consequences thereof is cause for great
concern.
3. The value of information is insufficient:
- The informational value of the 2011 financial statements does not meet the
requirements of the National Government Accounting Ordinance. Moreover, the
financial statements contain little or no elucidation. As a result, the 2011 financial
statements do not contain sufficient information to allow the user of the
statements to form an opinion regarding the implementation of policy intentions
and management thereof.
Based on the above findings, we conclude that the 2011 financial statements (October 10,
2010, through December 31, 2011) of Country Sint Maarten do not comply with the
applicable norms and legal requirements.
In the next few years, Sint Maarten faces a great challenge in terms of improving the level
of its internal organization so as to mitigate the number of errors and uncertainties.
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RECOMMENDATIONS
As far as financial information is concerned, we are aware of the importance of eliminating
backlogs and cleaning up a number of balance sheet items, such as interim accounts,
accounts receivable and accounts payable. We still recommend investigating the
collectability of outstanding receivables and that uncollectible receivables are written off, if
necessary. We do not rule out that advance payments issued to fund operating costs of
parts of the government were incorrectly classified as subsidies for some of the ministries.
We recommend exploring the establishment of a budget item ‘other provisions’. One
possibility in this respect would be a provision for major maintenance of buildings and
infrastructure (property of Sint Maarten). Furthermore, we recommend that care is
exercised when applying valuation principles related to assets and liabilities and when
determining income and expenditure (article 5, paragraph 3). We also urge consultation
with the Minister of Finance regarding the duty of registration of loans. It is important for
Parliament to be promptly informed of impending overruns (in terms of exercising its
budget authority). Obviously, the latter requires that the Minister of Finance is also kept
abreast of pending overruns. We therefore recommend that controllers report to the
Minister of Finance on a monthly basis regarding implementation of the budget and that
they indicate which budget line items are at risk for overruns.
As far as operational management is concerned, we recommend that the very highest
priority be given to putting financial management in order by:
- Requiring the Council of Ministers to deal with the various improvement plans in
definitive form and providing them to Parliament.
- Implementing the various improvement plans for financial management with
diligence.
- Addressing the deficiencies in financial management in a structured fashion and
requiring the Minister of Finance to set up a realistic improvement plan.
- Reporting to Parliament on the progress of implementation of various improvement
plans and requiring the SOAB to investigate the reliability of this progress
(correctness, completeness and adequacy of explanation).
In order to ensure that government’s auditor can provide an unqualified audit opinion of
the annual financial statements in future, we believe that priority should be given to
putting financial management in order. We are of the opinion that the Minister of Finance
should investigate whether his intended plans regarding tax compliance are organized and
implemented in such a way as to achieve the intended objectives, so that results are
obtained that fall within established standards, as well as within the budget. We are
convinced that, once financial management of government has been well organized, there
will be a greater guarantee that the annual financial statements will comply with all
requirements required by article 23 of the Lv AR.
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As far as policy information is concerned, we are aware that formulation of the three W-
questions as relates to budgets (What do we want to achieve? What shall we do to achieve
it? and What will it cost?) is a process that the ministries cannot accomplish in a year.
However, we recommend that the ministries are instructed regarding the importance of the
need for including policy information in the budget and that each ministry should
commence formulating the three W questions as part of the ministries’ (next) budget
submissions.
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1 REGARDING THIS REVIEW
1.1 Objective
The Minister of Finance accounts for the performance of the ministries of Country Sint
Maarten during the previous budget year in the annual financial statements. The National
Government Accounting Ordinance (article 52) stipulates that the annual financial
statements are to be drawn up by the Minister of Finance prior to September 1st
The annual financial statements are designed to report on the financial position, the
income and expenses (financial information), and the functioning of the various ministries
(information on operational management). In addition, the financial statements must also
provide information related to whether the objectives and results agreed to in the
ministries’ budgets has been achieved (information on policy).
of the
year following the reporting year. The Minister of Finance provided the 2011 financial
statements to us by letter dated July 19, 2013.
We examine the information on the financial statements in each of these areas and also
review the underlying processes within the ministries. We formulate our findings and
opinions on this basis. It is stipulated in the National Government Accounting Ordinance
(article 54) that Parliament cannot approve the annual financial statements prior to
familiarizing themselves with the report of the General Audit Chamber.
The following is the sequence of topics as presented in this report: The ministries’ finances
(section 2), operational management of the ministries (section 3) and information in the
financial statements on policy maintained by the ministries (section 4). Finally, enclosed in
this report is a copy of the response received from the Minister of Finance on our draft
report, followed by our epilogue (section 5).
1.2 Legal opinion/framework
This financial compliance review of the financial statements is the first for Country Sint
Maarten. Based on our statutory tasks regarding the annual financial statements as
described in the Lv AR and the Constitution, we examine whether the financial and
operational management as well as policy information contained within the financial
statements is prepared in accordance with applicable regulations. As such, this report is
prepared in support of Parliament’s authority to discharge ministers related to their
financial duties.
1.3 Review of financial information
According to the Lv AR (article 23, paragraph 1, 2 and 3) we review (a) the financial
management maintained by the Ministers and the annual financial justification thereof, as
well as the management of Parliament’s budget maintained by the Secretary General on
behalf of the presidium of Parliament; (b) the accounts involved in maintaining and
justifying the financial management.
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In terms of the financial management, we investigate whether the income, expenditures
and balance sheet changes occurred in compliance with the adopted budget and in
accordance with regulation. We also review whether care was taken to insure an orderly
and manageable financial accounting.
The financial management is also reviewed by means of determining if the financial
reporting provides a true and fair representation as required by law.
1.4 Review of operational management
According to the National Government Accounting Ordinance (article 41, paragraph 2) the
Minister who is charged with the management of the relevant functions in the budget is
responsible for the efficacy and efficiency of the policy on which the budget is based, as
well as the efficiency of the operational management of the ministry. We believe
accountability for the aforementioned must be provided in the annual financial statements.
1.5 Review of policy information
According to the National Government Accounting Ordinance (article 10, paragraph 2) the
budget must include a separate financial section that includes a report on financial
consequences, and the funding of new policy initiatives or commitments regarding policy to
be pursued. In addition, the report accompanying the annual financial statements must
include (National Government Accounting Ordinance article 32, paragraph 2) an account
regarding the extent to which the policy intentions formulated for the relevant fiscal year
have been achieved.
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2 FINANCIAL INFORMATION
Financial information refers to information on the entirety of decisions, activities and rules
on the management of, and accountability for, financial flows. ‘Orderliness’ and
‘verifiability’ are prerequisites for good financial management. Financial management can
be considered orderly if it, among others, meets the following conditions:
! The authority for undertaking financial actions is clearly documented and regulated
and said regulation is adhered to. This also implies that the responsibility for
safeguarding financial resources is clearly documented;
! Financial management should meet applicable regulation.
Financial management can be considered verifiable if available financial information allows
external auditors to easily reconstruct decision-making at any given moment.
In order to examine if the financial management is orderly and verifiable, we performed an
initial assessment of the figures as well as a compliance review based on the National
Government Accounting Ordinance of the annual financial statements. In accordance with
article 25 of the Lv AR, we made use of the findings of the SOAB (that undertook an audit
of the 2011 Annual Accounts) in analysing the financial management.
2.1 Audit of the annual financial statements by the SOAB
The audit of the annual financial statements by SOAB was conducted in two steps,
specifically:
! Investigation of processes, such as the Purchase of goods and services, Collection
of taxes, Granting of subsidies and Salaries & Wages. This is referred to as the
interim audit.
! Final audit of the annual accounts.
Because the Minister of Finance is responsible for drawing up the annual financial
statements and the approval of the annual financial statements by the internal auditor
depends - to a great extent -on the quality of financial data, it is important that the
Ministry of Finance supervises the financial management of the other ministries.
The SOAB selected and closely examined processes of each ministry as part of the interim
audit. The SOAB presented the outcomes of these investigations to the relevant ministries
for comment in the form of draft management letters (ML). All ministers provided
responses to the draft ML’s with the exception of the Minister of Finance. The reactions of
the ministers were incorporated in the definitive ML. The ML was issued in final form in
December of 2012. The ML, including reactions, relating to the Ministry of Finance was
provided to the Minister of Finance on March 28, 2013.
Ideally, ministers are informed by the auditor of the findings resulting from the audit in the
ML during the course of the fiscal year. Issues that are relevant to financial management
and operational management and the associated financial risks are reported. Informing the
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ministers in a timely fashion of existing financial risks, affords the ministers the
opportunity to take corrective measures. Because the ML was definitively issued in
December of 2012, the ministers were not provided with said opportunity.
The SOAB issued a report of findings along with their financial opinion related to the
annual financial statements to the Minister of Finance on September 6th
We assessed the SOAB’s planning and execution of the audit. As such, we inspected the
audit file. Furthermore, we conducted discussions with the managing auditor. As a result,
we believe that the SOAB was justified in issuing an adverse audit opinion on the annual
financial statements.
2013. SOAB issued
an adverse opinion.
2.2 Errors and uncertainties regarding financial information
We have determined that inadequate internal control procedures are present at all
ministries. We find that there are serious and significant deficiencies that influence internal
control and thus also financial management. The result of which are errors and material
uncertainties in the annual financial statements. The annual financial statements include
errors in the amount of NAf 49.9 million.
In terms of the uncertainties, we conclude the following. The quality of the administrative
organization (accounting system) and internal control is inadequate. This results in
material uncertainties in the annual financial statements which relate to the accuracy
and/or comprehensiveness of the personnel expenditures, income transfers, and
expenditures for purchase of good & services as well as the (tax) receipts.
We have included a summary of the findings that have a major impact on internal control
and/or the annual financial statements in Appendix 1 (refer to table 6 and 7). For each
finding we provide an opinion regarding the influence on internal control and the annual
financial statements. The degree of influence is expressed in terms of high, average or
low. The findings per ministry are presented in table 8.
In Appendix 2 we present a breakdown of errors (table 9) and uncertainties (table 10).
In figure 1, we provide information on the required financial information that was not
included in the annual financial statements 2011 and the impact said omissions have on
the informational value of the financial statements.
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Figure 1 Missing financial information in the Sint Maarten 2011 Annual Financial
Statements
No. Article Response Impact
1. Do the budget, the multi-year budget and the
annual financial statements, together with the
explanations; provide insight into both the
financial position and the income and expense
of the collective sector so as to be able to form
a justifiable opinion? (A.B. 2010 no.23 article
2)
The annual financial statements do not
provide an accurate picture of the scope
of all items, given that many
uncertainties exist in various items. The
explanations, too, are not sufficient to
provide proper insight. The annual
financial statements did not report on the
financial position and the income and
expenditure of the collective sector.
High
2. Are the annual financial statements been drawn
up by the Minister of Finance prior to
September 1 of the year following the one they
cover? (A.B. 2010 no.23 article 52 paragraph
1)
No, the 2011 annual financial statements
were provided over ten months late.
High
3. Are the schedules (templates) of statements,
overviews and recapitulations referred to in
this section established by regulations
implemented by the Minister of Finance? (A.B.
2010 no.23 article 17)
The Minister of Finance has to date not
established schedules (templates) for
statements, overviews and
recapitulations for drawing up the annual
financial statements.
High
4. Do the income statement and its accompanying
explanations provide a reliable and systematic
way of reflecting the type and scope of all
income and expense and the resulting balance?
(A.B. 2010 no.23 article 20 paragraph 1)
The income statement fails to provide an
accurate picture of the scope of all
income and expenses and their balance,
given the many uncertainties that exist in
various items. The explanation on income
and expense is very brief.
High
5. Are the divestments explained in a separate
paragraph of the annual financial statements,
including a report on both the proceeds and the
book value at the time of disposal? (A.B. 2010
no.23 article 24 paragraph 4)
There is an overview of investment, but
no separate overview of divestments with
an explanation (refer to Annual Financial
Statements 2011, Exhibit A).
High
6. Are amounts specified by national decree in
line with general regulations below which
investments are not capitalized? (A.B. 2010
no.23 article 26 paragraph 5)
A national decree must be issued that
reports on the amounts that should be
capitalized.
High
7. Is there an overview of subsidies, contributions
and other income transfers granted to the
The contributions of third parties related
to investments are not included in this
High
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No. Article Response Impact
Country that are still to be settled for each
year of award, as well as an overview of
subsidies, contributions and other income
transfers settled in the fiscal year? (A.B. 2010
no.23 article 29 paragraph b)
overview.
8. Is there a statement of the tax assessments
issued in the past fiscal year and prior fiscal
years, as well as assumed future tax receipts
that relate to these notifications? (A.B. 2010
no.23 article 29 paragraph c)
There is no such statement of tax
assessments and future tax receipts that
could provide a realistic view of the tax
revenues still to be received.
High
9. Does the cash flow statement provide a fully
comprehensive and specified explanation of the
changes in the liquid resources during the
relevant fiscal year, by means of distinguishing
between the types of incoming and outgoing
cash flows? (A.B. 2010 no.23 article 30)
The cash flow statement reflected in the
annual accounts is a summary. This
article requires a detailed overview. The
overview must provide insight into
incoming and outgoing cash flows and
changes during the relevant fiscal year.
High
10. Amendments in the budget? (A.B. 2010 no.23
article 31)
Proposals for budget amendments in the
budget of October 10 through December
31 2010 were made, but they have never
been approved by parliament, which
results in noncompliance (unlawfulness).
High
Accuracy errors
We conclude that the reporting related to the expenditure per ministry contains material
errors and is therefore not reliable. These errors often involve incorrect classification
(costs are allocated to a budget item unrelated to the actual costs). To illustrate:
! Personnel expenditure allocated to the Minister of General Affairs amount to NAf
487,000. The actual personnel expenditure of the Minister is approximately NAf
250,000. In this case the personnel expenditure of supernumerary civil servants
have (incorrectly) been classified as personnel expenditure of the Minister.
! The costs related to the Royal visit (Queen) (NAf 294,000) have been classified as
representation expenditures of the Minister of Finance.
Furthermore, we compared actual expenditures and revenues with budgeted expenditures
and revenues for the period January 1st through December 31st
, 2011. We requested
clarification from the Ministry of Finance for the differences. In most cases we did not
receive an explanation for the differences.
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Compliance errors
The period from October 10th 2010 through December 31st
In accordance with article 100 of Sint Maarten’s Constitution, the budget of income and
expenditures of the Country is adopted by national ordinance. Parliament did not adopt a
budget for the period October 10
2010
th through December 31st of 2010. As a result, based on
article 6 of the National Government Accounting Ordinance and article 100 of the
constitution, all expenditure should be viewed as being unlawful. According to the annual
financial statements, total expenditures amount to NAf 62,140,900.
Parliament established the budget for the calendar year 2011 on July 7
Calendar year 2011
th
Table 1 Budget overruns in 2011 annual financial statements
, 2011. In
accordance with paragraph 2 of article 48 of the National Government Accounting
Ordinance overruns are defined to include expenditures and investments higher than
budgeted and income lower than budgeted. The budget overruns are:
Budget overruns 2011: In NAf
- More expenditure than budgeted 72.485.018
- Lower revenues than budgeted 43.026.721
- More investment than budgeted 25.781.865
Budget authority is the purview of Parliament. Parliament must therefore be informed
promptly of pending overruns. As such, it is necessary that, in the first instance, the
Minister of Finance is kept informed of impending overruns in timely fashion. We,
therefore, recommend that controllers report to the Minister of Finance on a monthly basis
regarding budget implementation and that they indicate which items are at risk for
overruns.
An overview of all errors (refer to table 9) and uncertainties (refer to table 10) can be
found in Appendix 2 of this report.
Incorrect classification
The funding of operating expenditures of, for instance, the Security Service and the
National Archives is included in the annual financial statements under the budget item
‘Income Transfer’ under Ministry of General Affairs. These are normal operating costs, such
as personnel charges, travel and accommodation costs, the rental of buildings, etc., as well
as confidential expenditures (in the case of the Sint Maarten Security Service). The total
is:
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Table 2 Income transfers from the Ministry of General Affairs
No. Income transfers from the Ministry of General Affairs In NAf
1. Sint Maarten Security Service 3,000,000
2. National Archives 346,401
Total 3,346,401
All expenditures of the Sint Maarten Security Service (VDSM) and the National Archives
should be classified under the correct economic cost categories in the Sint Maarten annual
financial statements. We cannot rule out that advances used for funding operating
expenditures of some elements of government, are incorrectly classified in the financial
statements.
Sint Maarten Security Service
The Sint Maarten Security Service maintains its own financial administration. The VDSM
receives an advance from the Ministry of Finance for funding operating costs each quarter.
To date, the VDSM has not drawn up annual accounts. As a result, the actual costs are not
specified in the Sint Maarten annual financial statement of 2011 (other than the total of
advances received i.e. NAf 3 million). The actual expenditure has also not been audited by
either the internal auditor or by us. The fact that confidential expenditures are used is no
reason to deviate from the National Government Accounting Ordinance. Confidential
expenditures should be verified as such and classified in the annual financial statements, taking
into account the special procedures stipulated for reviewing the confidential expenditures
outlined in the National Government Accounting Ordinance and the Lv AR.
Prior to the Secretary-General and the Chairman of the General Audit Chamber being able
to investigate the VDSM, they must undergo a security screening. Both the chairman and
the secretary-general have requested the required screening. We believe that the
government could have prevented the failure of the review / audit of confidential and
regular VDSM expenditures in 2011.1
Crime Fund
The bank balance of the Crime Fund amounted to NAf 2,265,254 at the end of 2011. These
funds are not accounted for in the annual financial statements 2011 of Country Sint
Maarten. In accordance with the Crime Fund Ordinance (PB 1996, no. 1), the fund is under
management of the Minister of Justice. The manner in which funds are acquired and how
these funds are used must be reported in an annual report. Reporting is said to be
required by a ministerial decree as issued by the Minister of Justice on November 30th
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!1 The SOAB investigated the VDSM for possible financial irregularities at the request of the Prime Minister in June of 2013. The report on the investigation conducted includes factual findings. No audit has taken place.
2010.
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The income and expenditure are not accounted for in the annual financial statements of
2011. As far as the General Audit Chamber has been able to determine, the income and
expenditure has not been budgeted up to and including budget 2013. There is also no
accounting known to us regarding realized the income and expenditure.
Rental of buildings
According to the annual financial statements, it is expected that the new administration
building will be completed in 2013. The delivery date for the building was specified as
January 1, 2008, but it is not in use. It is estimated that an amount of NAf 21 million will
be required to finish and equip the building. The last phase of the new construction was
delayed. The reason for the delay is not explained in the annual financial statements.
We understand that one possible reason for the delay was the lack of financing to cover
the cost of completion. On the basis of a positive advice issued by the Council of Financial
Supervision Curaçao and Sint Maarten (Cft) dated August 16, 2011, the government of
Sint Maarten was afforded the opportunity to seek two loans totalling NAf 49 million (Cft,
2011). The first loan (NAf 22 million) was designated for financing the completion and the
equipping of the office building. The second loan was intended for acquiring the rental
contract from current owner of the new office building. An amount of NAf 27 million was
available for this purpose. Sint Maarten failed to make use of these opportunities, both of
which have elapsed.2
In the meantime, there have been other developments. The Minister of Finance, for
instance, indicated in a letter to us on December 12, 2011, that he secured a loan as of
October 12, 2011, in the amount of NAf 26 million with an interest rate of 1.5%, and for a
period of five years. The Minister plans to refinance an earlier loan using the
aforementioned loan, with the objective of lowering interest expenses. (Finance, 2011)
The reason remains unclear.
According to the explanation related to the balance sheet item ‘Tangible Fixed Assets’,
financing costs amount to NAf 3.3 million a year. Because the new building has not yet
been put into use, other buildings still need to be leased. This situation constitutes an
inefficient expenditure of public resources. According to the aforementioned advice
provided by the Cft, the Minister of Finance has calculated that buying, completing and
equipping the new government building will result in structural savings in expenditures of
NAf 4 million.
2.3 Errors in content
The annual financial statements do not fully comply with the organizational requirements
stipulated in the National Government Accounting Ordinance. Appendix 2 (table 11) contains a
summary of the findings that have a significant (high) impact on the financial statements.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!2 Due to the fact that the circumstances under which the Cft has recommended a request for a loan can change, such advice should be accompanied by a term of validity. This is in line with article 51 of the National Government Accounting Ordinance that stipulates that loans taken out against the capital account during the current year that have not resulted in obligations should be added to the budget of the following fiscal year. Advice from the Cft, therefore, by definition is linked to the budget year to which the loan relates and expires as of December 31 of the current year. (Cft, 2013b)
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2.4 Opinion of financial information
Opinion
We believe that the financial information in the 2011 Annual Financial Statements of Sint Maarten
does not meet the requirements of the National Government Accounting Ordinance (refer to figure
2).
We have identified the serious and significant deficiencies that influence the internal control and, as
such, also the financial management. Inadequate internal control procedures are present at all
ministries. This situation has resulted in errors and uncertainties3
in the annual financial statements.
The annual financial statements include errors in the amount of NAf 49.9 million as well as material
uncertainties.
2.5 Deficiencies in balance sheet items
Our investigation shows that there is uncertainty regarding the valuation and the existence
of various balance sheet items.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!3 'Uncertainty' implies that the auditor, although he considered all control measures possible in the given circumstances, could not establish the correctness of the classification, but equally could not establish that it was incorrect.!
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Tangible fixed assets
Table 3 Statement of fixed assets on the balance sheet
No. Balance sheet fixed assets In NAf
1. Buildings under construction 39,875,082
2. Buildings in use 104,860,198
3. Inventory 19,137,584
4. Vehicles 2,099,823
Total 165,972,687
There is uncertainty regarding the valuation and distribution of tangible fixed assets due to
the lack of property administration and the absence of a recent valuation report related to
the item Building under construction (the new administration building).
Holdings
The valuation of the balance sheet item ‘Holdings’ at the end of 2011 did not change
compared to October 10, 2010. The valuation on October 10, 2010, was based on intrinsic
value. Sint Maarten views this as the market value at the moment of transfer on October
10, 2010. Sint Maarten is basing this on article 26 of the National Government Accounting
Ordinance. This article specifies that assets that are obtained in wholly or partially by third
parties at a value other than market price and are transferred to the Country, should be
valued –inasmuch as possible- at the market value at the time of transfer. We prefer
applying article 5, paragraph 3, to this balance sheet item (‘Holdings’). Article 5 states that
care must be exercised in applying principles of valuation to assets and liabilities and in
determining income and expenditure. Furthermore, we note that the annual accounts of
eight holdings were not available at the time the annual financial statements 2011 were
drawn up.
Accounts receivable
‘Accounts receivable’ is stated at NAf 32.7 million on the balance sheet as of October 9,
2010. The Provision for Doubtful Accounts of NAf 53.8 million has already been
incorporated in the aforementioned amount. The balance sheet item ‘Accounts receivable’
is not substantiated using comprehensive specifications and contains old items for which
the collectability remains unknown. There is therefore uncertainty regarding the existence
as well as the valuation of this balance sheet item. We recommend that the collectability of
outstanding receivables is investigated and that uncollectible receivables are written off, if
possible.
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Long-term loans
The documents prepared as evidence of the loan obligations of the country, must be
registered by or in the name of the General Audit Chamber in accordance with article 43 of
the Lv AR on penalty of nullification. Sint Maarten has issued bonds in the period from
October 10, 2010, through 2011 in the amount of NAf 328 million. These loans were not
presented to us for registration. On January 3rd
Provisions
2012, we proposed to the Minister of
Finance, the need to jointly develop -and agree- on a procedure for registration. The
Minister did not respond to this proposal. At present, the Minister is not in compliance with
the law by virtue of not having registered the aforementioned loans. This situation cannot
persist. We intend to continue to strongly advise the Minister of Finance regarding the
need to consult on the registration requirements.
The following three provisions were included on the balance sheet as at December 31,
2011:
Table 4 Statement of provisions
No. Provisions In NAf
1. Windward Islands Airways International NV 18,268,266
2. New Post NV 7,502,800
3. Sint Maarten Postal Services NV 403,729
The reason for creating these provisions is the negative equity of the holdings mentioned
that was transferred by the former Netherlands Antilles to Sint Maarten as part of the
division of property and assets.
We further concluded that there are no other provisions stated on the balance sheet. We
recommend exploring the possibility of creating a budget item ‘other provisions’. One
possibility in this respect would be creating a provision for major maintenance of buildings
and infrastructure (property of Sint Maarten).
Off balance sheet liabilities
In the explanation of the balance sheet, a liability is reported in the amount of NAf 22.7
million. This liability is seemingly related to a debt to SZV. After the annual financial
statements 2011 were drafted, the debt of Sint Maarten had been absolved (cleared) by
SZV.
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2.6 Opinion of balance sheet items
Opinion
We believe that the information regarding balance sheet items does not provide a reliable
assessment of the scope of all items, considering the many uncertainties that exist about the items.
The explanations do not provide sufficient insight.
!
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3 OPERATIONAL MANAGEMENT
Operational management is the management and control of all operational processes that
ensure that a ministry functions properly. This includes the management and control of
both the primary process and the supporting processes, such as financial management and
material management, as well as the processes in the area of personnel, information
services, administration, communication and housing. When the ministries conduct their
management & operational control processes well, they can be considered to be ‘in control’
of operational management.
In order to establish whether ministries are ‘in control’ regarding operational
management, we first assessed the improvement plans that address financial
management. We used findings from the Cft, the SOAB and the Uitvoeringsorganisatie
Stichting Ontwikkeling Nederlandse Antillen (USONA). Secondly, we investigated the extent
to which ministries promptly signalled risks that could hamper achievement of the
objectives previously established and whether they defined adequate control measures for
the risks and implemented these, when necessary.
3.1 IVB Programme
In May of 2008, an Institutional Strengthening and Administrative Efficiency Programme
2008 – 2012 was established in order to facilitate the transition from Island Territory to
Country (General Services, 2008). The goal of the Institutional Strengthening and
Administrative Efficiency Programme (IVB) was to support the transformation from island
territory status to country status with a special focus on good governance, social
development, law enforcement and socio-economic development. The programme was a
continuation of the Administrative Development Cooperation Programme 2002-2006 that
had elapsed after an extension of one year on December 31, 2007. The following
programme components were chosen in the IVB:
1. Strengthening the official apparatus and governing administration: This involves the
entirety of personnel and material prerequisites in order to enhance the
professionalism of the civil service apparatus and to allow the governing administrative
apparatus to function effectively.
2. Good financial position: This involves the improvement of the collection and levying
capacity as well as improvements in budgeting and liabilities administration.
3. Quality of legislation and regulation: This involves increasing expertise in the field of
policy and law.
4. Government modernization: This involves improvements in operational management
with the objective of reducing processing times and improving the provision of
information to citizens.
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Figure 2 Work to be performed in implementing the four IVB programme
components
IVB 2008-2012 Programme
Components
Work to be done
1. Strengthening the civil service
apparatus and administration:
! Strengthening the policy sectors by expanding capacity.
! Creating checks and balances mechanisms by strengthening support to
the Island Council for exercising their control task and involving the citizens in decision-making.
! Professional training.
! Developing and implementing an integrity policy for civil servants and
the administration.
2. Good financial position:
! Implementation of Concern Control.
! Setting up a department of fiscal affairs and budget inspection.
! Expansion of the financial administration system.
! Replacement of the automated taxation system.
! New tax department for Sint Maarten.
3. Quality of legislation and
regulation:
! Increasing legislative capacity.
! Legislation programme.
! Training of policy employees/lawyers.
4. Government modernization:
! Improving operational management in Citizen’s Affairs (digitizing archives, safeguarding documents of value, introduction of passport
scanners).
! Streamlining basic registration procedures (registration of individuals, lots, buildings, companies, etc.) and introduction of Citizen Service
Numbers.
! Creating an IT infrastructure for Public Services.
Table 5 Budget programme components cooperation programme IVB (in NAF X
1,000)
IVB 2008-2012 Programme Components 2008 2009 2010 2011 2012 Total
1. Strengthening of civil service
apparatus and administration
1,850 2,700 700 350 450 6,050
2. Good financial position 850 4,915 3,965 4,500 - 14,230
3. Strengthening of policy and legislative
capacity
1,100 1,050 750 500 500 3,900
4. Government modernization 2,000 1,500 1,500 610 500 6,110
Total IVB 5,800 10,165 6,915 5,960 1,450 30,290
We have not been able to determine if the IVB cooperation programme has not been dealt
with in definitive form by the Council of Ministers. Furthermore, the IVB has not been
provided to Parliament.
A mid-term evaluation was commissioned by the Ministry of Interior Affairs and Kingdom
Relations (BZK) and was carried out by the firm Ecorys (BZK, 2011). The plan,
implementation and initial results of the IVB were analysed in this evaluation in order to
arrive at practical recommendations aimed at strengthening and possibly guiding the
programme so that the programme’s objectives are achieved.
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First, the evaluation, published on August 22, 2011, shows that there have been numerous
reprioritizations of the programme. Sint Maarten and the Netherlands, for instance, chose
the project Development of High Councils of State in order to address the issue of 'checks
and balances'. As a result, activities aimed at citizen participation were eliminated. The
mid-term evaluation states that it is noteworthy, that the gradual shifts in the
implementation of the programme did not lead to a clear discussion between the
Netherlands and Sint Maarten on the consequences as far as achieving the IVB objectives,
although this would have been desirable.
Secondly, the projects seem to be directed primarily at civil servants and not at the
administration (governing officials) and citizens as originally intended. Good governance is
based on three pillars: the trustworthiness of governing officials, civil servants as well as
citizens. While the programme is directed at all three pillars, the activities under IVB are
geared mostly to the civil servants and hardly at all to the remaining pillars. This also has
the effect that by and large, the civil servants feel involved in the programme, while this is
much less the case for governing officials and/or citizens.
Thirdly, it appears that guidance of the programme has weakened since the transition from
the Directorate of Programmes and Projects (DPP) to the department of Internal Affairs
and Kingdom Relations (BAK) that occurred as of October 10, 2010. DPP was an
independent directorate and could function as a central point between the administration
(governing officials) and various departments. BAK on the other hand, does not have a
position independent of the ministries and, therefore, has less influence and impact to
encourage the implementation of projects. The capacity at BAK is insufficient to undertake
the numerous tasks required, so BAK, for practical reasons, can pay little attention to
monitoring the substantive progress of the projects and the programme against objectives.
Limited availability of capacity is an important cause for delay of the IVB; the
constitutional transition has exacerbated this factor. In 2011 the focus was on the
organizational set-up of the ministries and other governmental organizations, so capacity
for the IVB remained limited. BAK did, however, set up a project manager pool in order to
solve the capacity problems. Another factor are the procedural rules required by USONA.
These procedures are not always suitable in the context of Sint Maarten. The scale of the
island means that there are a limited number of providers. Strict implementation of –
specifically- bidding rules, has brought about delays. Furthermore, the mid-term
evaluation asserts that lack of availability of the new administration building affects
(delays) a number of the projects; for example, the project for improving operations at the
Census Office.
BAK has in fact succeeded in obtaining an allocation level of 96% for the IVB resources.
Progress in committing IVB resources and most importantly in terms of payments has,
however, been limited. Results are lagging behind actual plans. The schedule for
implementation of a number of projects is ending soon without the projects having actually
been started. According to the evaluation, it is too soon to make any statements regarding
the use of resources in relation to results achieved.
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At the end of 2011 a total of 24 projects had been approved for an amount of NAf 33.8
million within the IVB programme, including elements of the program previously attributed
to the Netherlands Antilles, now under responsibility of Country Sint Maarten. (USONA,
2012)
3.2 PEFA Improvement Plan
The Cft has been monitoring government finances of Sint Maarten and Curaçao since
December 10, 2008. Since October 10, 2010, the monitoring is based on the Kingdom Act
on Financial Supervision of Curaçao and Sint Maarten (the Kingdom Act). In addition to
evaluating the budget against the norms in the Kingdom Act, the Kingdom Act also
stipulates that the Cft examines the progress of improvement activities in the field of
financial management.
Article 33 of the Kingdom Act stipulates that the Council of Ministers of the Kingdom shall
decide in 2015 on whether to terminate, restrict or continue temporary financial
supervision of Curaçao and Sint Maarten. With respect to ending or limiting financial
supervision after October 10, 2015, it is important that both financial budgeting standards
are complied with, and that financial management is in order. To be able to review
financial management in 2015 objectively, the Cft uses an internationally recognized
framework of standards: the Performance Measurement Framework of the working group
Public Expenditure and Financial Accountability (the PEFA framework). The PEFA framework
consists of 28 indicators (with one or more sub-indicators) broken down into six sub-fields
within financial management.
To obtain an understanding of the state of affairs of the financial management of Sint
Maarten as of October 10, 2010, the Cft conducted an inventory of financial management
during 2011. The inventory (or baseline study) showed that financial management in Sint
Maarten was not yet in order and a five-year improvement plan was developed. This
improvement plan sets out objectives for improvement in financial management per
indicator and includes a phased plan, consisting of action points and a time line, designed
to ensure that the objectives set in the improvement plan (the desired scores for 2015) are
achieved. Sint Maarten established both the desired scores for 2015 along with the growth
path in consultation with the Cft. A score of A is the highest and D the lowest. We have not
been able to ascertain that this improvement plan has been dealt with in definitive form by
the Council of Ministers. Furthermore, the PEFA based plan has not been presented to
Parliament.
The Cft has recently undertaken a second inventory of financial management in Sint
Maarten, this time specifically of the annual accounts of 2010, implementation of the
improvement plan in 2011 and the 2012 budget (Cft, 2013a). It appears from the
inventory that Sint Maarten has achieved improvement on nine of the 28 indicators
compared to the baseline measurement. However, Sint Maarten experienced decline on
one indicator. There was no change in the case of the remaining indicators (refer to
Appendix 3).
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We have established that the previously defined interim goals in the five-year PEFA
improvement plan have been abandoned. The Ministry of Finance indicated that they have
abandoned the interim ambitions in lieu of so-called ‘low-hanging fruit’. The intended
scores for 2015 are still being pursued, however. While we understand this approach, the
resultant risk is that certain indicators can be overlooked and may not be achieved on
schedule at a later stage.
As far as the improvement plans for financial management are concerned, we recommend
that the very highest priority be given to putting financial management in order by:
- Require the Council of Ministers deal with the various improvement plans (IVB and
PEFA) in definitive form and providing them to Parliament.
- Implementing the different improvement plans for financial management with
diligence.
- Systematically addressing the deficiencies in financial management that we have
identified and requiring the Minister of Finance to set up a realistic improvement plan.
- Reporting to Parliament on the progress of implementation of various improvement
plans and requiring the SOAB to investigate the reliability of this progress
(correctness, completeness and adequacy of explanation).
We are convinced that once financial management is well organized, there will be a greater
guarantee that the annual financial statements will be in accordance with all the
requirements included in article 23 of the National Government Accounting Ordinance.
3.3 Tax revenues
The Minister of Finance indicated in the draft budget of 2011 and the multi-year budget
2011-2015 that the tax compliance policy is (aimed at) optimizing tax revenues. This
policy is also aimed at eliminating bottlenecks, so that revenues of Sint Maarten can
increase without having to raise tax rates.
One of the measures that must be taken in the next few years, according to the Minister,
is improvement of tax levies and collection. Firstly, policy will be directed at simplifying the
tax system; secondly, activities are needed for the upgrading of the tax department and
finally, there is a need to provide information and to communicate.
Simplification of the tax system will focus on reducing the costs of system of levying and
collection (these costs now comprise approximately 2.7% of revenues), improving
compliance and creating a favourable business atmosphere. The tax department, formerly
the island receiver and central government receiver, will be centralized in one New Tax
Department. Special attention will be paid to educating the public regarding the rights and
duties of the tax department and taxpayers, an area that has been neglected up to 10-10-
10.
Total revenues budgeted for 2011 amounted to NAf 420.9 million including NAf 17.0 million
from projects and programmes subsidized by the Netherlands. Revenues budgeted for
2011 exclusively were NAf 403.9 million of which NAf 388.7 million were taxes, levies and
refunds. Total revenues realized for 2011 were NAf 402.6 million of which NAf 379.3
million were taxes, levies and refunds. Revenues were thus 2.4% less than budgeted.
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In 2011, the government did not take adequate control measures to increase tax revenues.
There were too few internal policy rules and norms to guarantee improvement in the
functioning of the organization responsible for tax levies and collection and the
introduction of a simplified system. We are of the opinion that the Minister of Finance
should investigate whether his intended plans regarding compliance are organized and
implemented in such a way so as to achieve the intended objectives and that results
obtained fall within established standards, as well as within the budget.
3.4 Other audits
Personnel management
Personnel management has required a good deal of attention from the sectors (now
ministries) of the previous Island Territory of Sint Maarten for many years. Based on our
investigation in 2011 (General Audit Chamber, 2012b), we could not establish the
lawfulness of personnel expenditures of the ministries of Sint Maarten in 2011. This is
primarily due to poorly structured personnel files, missing, and incomplete or out of date
information.
Pension management
As far as pension management is concerned, we have determined, based on our
investigation in 2012 (AR, 2013), with a reliability of 95%, that in 2011 only 45% of
employees from the personnel database were registered with the pension fund. If 45% are
registered in the pension fund, it implies that the remaining 55% of public servants are not
registered. This does necessarily lead to financial consequences if the country contributes
all retained premiums and employer premiums to the pension fund. The latter situation, as
we noted in our report, has only been happening since 2012. In 2011, NAf 12.1 million less
was invoiced than would be expected based on the calculation of the pension contribution.
No substantiation related to financial provisions by Sint Maarten was made in terms of
pension premiums. It is unclear whether the provision of NAf 46 million of the former
Island Territory of Sint Maarten is sufficient. This means that, in the long-term, insufficient
transfers of pension premiums could have considerable direct financial consequences for
Sint Maarten.
None of the important organizations related to this subject of Pensions (General Pension
Fund and the Ministries of Finance and General Affairs) could provide insight into the scope
of the problem. The lack of an overview of the financial consequences causes us great
concern.
Results of the Financial Compliance Review of 2010
In our report of the Annual Accounts of 2010 of the Island Territory of Sint Maarten (AR,
2010), we established that risks existed due to the lack of resources, registration, files and
legislation. We have established that these risks still exist in 2011. No adequate control
measures have been taken. We also establish that in 2011 the Ministry of Finance did not
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have sufficient qualified personnel and that all ministries appear to have inadequate
internal control procedures.
In order to ensure that the auditor can provide an unqualified audit opinion of the annual
financial statements in future, we believe that priority should be given to putting financial
management in order.
3.5 Opinion of financial management and material management
Opinion
We believe that financial management and material management of the ministries is not in order in
2011. The ministries are not 'in control’ as regards operational management.
As a result, the annual financial statements contain many errors (totalling NAf 49.9
million) and material uncertainties. De errors and uncertainties relate to almost all
expenditure and revenue. This means that Sint Maarten faces serious challenges in the
coming years in terms of improving the internal organization sufficiently to mitigate errors
and uncertainties.
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4 POLICY INFORMATION
By policy information we refer to structured and well documented information on (1) policy
objective(s), (2) intended and/or achieved effects of policy, (2) operations to be
undertaken and/or already undertaken and (4) costs incurred as a result.
Policy and its implementation are funded to a large extent with public resources. The more
effective and efficient policy and implementation are, the more that can be achieved for
the same amount of money and at fewer cost for Sint Maarten.
Parliament needs usable information on policy (implementation) in order to make the right
choices, to exercise their budget authority and to act in a guiding, and above all,
controlling capacity. In our opinion, policy information is 'usable' if it meets certain quality
standards. We use two groups of main standards to assess the quality of information:4
1. Main standards for the presentation of information: Relevant and reliable presentation,
understandable and comparable.
2. Main standards for the creation of information: Reliable, valid, orderly/verifiable and
cost-effective.
A minister is responsible for the quality of information. In order to be sure that the policy
information is of satisfactory quality, the minister should undertake the necessary internal
organizational measures required for his/her ministry. Satisfying both main standards
appears still to be out of reach for the next few years. This year we therefore address only
the first main standard regarding presentation of the policy information. It must be
relevant, reliably presented, understandable and comparable.
Further we explored whether the most important stakeholders (Ministry of Finance, SOAB
and Cft) see the necessity of indicating the extent to which policy objectives have been
achieved, how this achievement has been implemented and how much it cost. These
questions are the counterparts of the questions that we feel must be posed in terms of the
budget (the three W questions): As far as operational management is concerned, we
recommend that the very highest priority be given to putting financial management in
order by asking:
! What do we want to achieve?
! What will we do to achieve this?
! What will it cost?
Knowledge regarding the aforementioned is required in order to be able to grant
government discharge for its financial management.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!4 In Appendix 4 we further elaborate (in detail) the terms ‘presentation’ and ‘creation’ of information.
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4.1 Availability of policy information
The Council of Ministers and Parliament need information regarding accountability
particularly to the extent to which policy objectives have been achieved, services have
been performed and budgeted funds have been spent. They can exercise guidance, if
necessary, based on the information. The annual budget and underlying documents are
prepared to this end. Every year we investigate the extent to which information is available
in the report of the minister on policy implementation.
As we already indicated in section 1.5, a report should be included in the annual financial
statements relating to the achievement of policy goals in accordance with the National
Government Accounting Ordinance. This report must be included as a separate
memorandum among the documents accompanying the annual financial statements.
The report specified above was not included in the 2011 Annual Financial Statements of
Sint Maarten.
4.2 The importance of policy information
The Ministry of Finance, the SOAB and the Cft have, as important stakeholders, indicated
that they understand the importance of policy information and specifically the link between
intended objectives, money spent and services performed. The Cft also pointed out the
possibility of introducing additional indicators in this regard for the PEFA improvement
plan. The Ministry of Finance, however, informed us that first priority would be given to
working on the elimination of backlogs and cleaning up several balance sheet items, such
as interim accounts, accounts receivable and accounts payable. We understand the
importance of this and furthermore, we are aware that formulating the three W questions
as related to the budget process (for all ministries) cannot be accomplished in a single
year. We do, however, recommend that the ministries are instructed regarding the
importance of policy information and that a start is made on formulating the three W
questions for the next budget cycle.
4.3 Opinion of the presentation of information on pursued policy
Opinion
We believe that the information value of the 2011 annual financial statement is insufficient for the
users of the annual accounts to be able to form an opinion on the implementation of policy and
management pursued.
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5 RESPONSE OF THE MINISTER OF FINANCE AND AFTERWORD OF GENERAL
AUDIT CHAMBER
The Minister of Finance responded to our report on October 3rd
5.1 Response of Minister of Finance
2013. We included his
complete response in section 5.1. The response of the Minister prompted us to include an
afterword (section 5.2).
The Minister writes:
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Translated:
To the chairman of the General Audit Chamber Mr. R. Halman E. Camille Richardson Street #13 Philipsburg Sint Maarten
Sint Maarten October 3rd 2013
Re: your letter 230913/147 of September 23rd 2013
Dear Mr. Halman,
In reference to your correspondence, number 230913/147 regarding the report of the General Audit Chamber “Financial Compliance 2011” please note the following. I have reviewed the following chapters of the draft report of September 23rd 2013, “Summary (pages 4-5” and Recommendations (pages 6-7)” and hereby indicate that the Recommendations will be followed. In addition, I wish to draw your attention to the following: Your correctly remark how the administrative organization and the structure of the internal control measures for the entire organization, and the individual ministries,
directly or indirectly affect the quality of the annual financial statements. In the report, the focus of the General Audit Chamber is predominantly on the Ministry of Finance. Every report, whether it is the annual financial statements or the budget, succeeds or fails on the basis of the quality of the information provided by the ministries regarding their respective accounting. Your financial compliance report could better describe information per ministry. On the basis of the current report, individual ministries are less likely to be called upon to comment. In this regard, I refer to referenced correspondence whereby you indicate that the draft report was discussed with staff of the ministry of finance as part of the process of hearing and consultations. In future, it would be preferable to seek an alternate approach that will allow other ministries to be involved in the process and in so doing enhance the collective awareness and responsibility.
Particular attention should also be placed to the method of reporting. As an example I suggest you consider amending the chapter “Compliance errors” on page 14. The table outlined in that chapter is misleading and could lead many readers to draw an incorrect conclusion. Additional explanation of this chapter is necessary. It would furthermore not be out of place for the General Audit Chamber to indicate improvements. Hopefully improvements will be evident in the near future. Respectfully,
M.J. Hassink Minister of Finance of Sint Maarten CC. Council of Ministers
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5.2 Epilogue General Audit Chamber
The minister requests additional attention for results (annual financial accounts/reports) of
the individual ministries, and that these are addressed by the General Audit Chamber when
reporting on the annual financial statements. Article 52 of the National Government
Accounting Ordinance establishes a specific role for the minister of finance in terms of the
organization and drafting of the annual financial statements
When the individual ministries provide their respective annual financial statements or
reports, and these are included in the annual financial statements of the Country Sint
Maarten, the General Audit Chamber will provide an opinion on them individually.
We recommend that the Minister of Finance prepares a draft – in keeping with article 52
paragraph 3 of the National Government Accounting Ordinance - of the requisite rules
related to drafting of annual financial statements / reports by the ministries. Furthermore,
the minister should share the results of the report on the 2011 financial statements with
his colleagues.
The minister also requests additional explanation for the chapter “Compliance errors” as
presented on page 14 of the report. We note that the budget variances outlined in table 1
of that chapter were derived from information contained in Exhibit G of the Annual
Financial Statements as these relate to the General Service and the Capital Account. The
figures presented in table 1 are the variances (overruns) related to expenditure, income
and investment.
In conclusion, we share the sentiment expressed by the Minister of Finance regarding
improvement of future financial statements. Given that 2011 represents the first year
annual financial statements are available for Sint Maarten, there is - by definition - no
basis for comparison.
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APPENDICES
Appendix 1 Findings that have a significant influence on internal control and/or annual
accounts
Table 6 Findings that have significant influence on internal control
Ministry of Findings with
significant
influence
Findings with
moderate influence
Findings with
minor influence
Total
Finance 13 14 5 32
Education, Culture, Youth and Sports 2 2 4
General Affairs 7 2 5 14
Health, Social Development and Labour 4 1 4 9
Justice 3 1 1 5
Tourism, Economic Affairs, Transport
and Telecommunications
3 1 1 5
Housing, Spatial Planning, Environment
and Infrastructure
4 2 2 8
Total number of findings 36 23 18 77
As percentage of total 47% 30% 23%
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Table 7 Findings that have significant influence on the annual financial statements
Ministry of Findings with
significant
influence
Findings with
moderate influence
Findings with
minor influence
Total
Finance 9 3 20 32
Education, Culture, Youth and Sports 1 1 2 4
General Affairs 3 2 9 14
Health, Social Development and Labour 2 2 5 9
Justice 2 1 2 5
Tourism, Economic Affairs, Transport
and Telecommunications
3 0 2 5
Housing, Spatial Planning, Environment
and Infrastructure
1 2 5 8
Total number of findings 21 11 45 77
As percentage of total 27% 14% 59%
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Table 8 Findings per ministry
Findings per ministry
Ministry of Finance
1. The direct connection between the policy to be pursued (what do we want to achieve?) and the budget (what will
it cost?) is not sufficiently apparent from the budget.
Purchasing process
2. The purchasing procedure is inefficient.
3. There is no formal procedure to determine that the invoice is in line with the receipt of goods or services and the
underlying agreements.
4. Payment by the Receiver of the purchase invoices is not processed periodically in financial administration (FA).
5. Purchases of drinking water and paper in excess of NAf 50,000 are not put out for public tender.
6. Because all telephone, water and electricity costs are charged to the FS budget, the FA has no insight into costs
per ministry and building. There is no exchange of information between FA and FS.
7. No determination is made internally as to whether the civil servants on the payroll are still on duty and
productive on behalf of the government.
Personnel expenditures
8. Internal control over the correctness and completeness in processing changes for personnel members is
inadequate.
9. The completeness of revenues from concessions to BT&P and the CBCS is not controlled internally.
Revenues from concessions
10. The completeness of revenues from the concession granted the CBCS is not controlled internally.
11. The tax department does not possess reliable information on taxable enterprises; no link is made to the data
maintained by the Chamber of Commerce.
Tax revenues
12. There is no clear distinction between 'subsidies’ and ‘financial contributions’. There is no formal arrangement for ‘financial contributions’.
Granting of subsidies
13. Compliance with the subsidy ordinance is inadequate.
Ministry of Education, Culture, Youth and Sports
1. Compliance with the subsidy ordinance is inadequate.
Granting of subsidies
2. Incorrect classification of subsidies paid within financial administration.
Ministry of General Affairs
1. A formal procedure for purchasing goods and services in emergencies does not exist.
Purchasing process
2. The FA department has no insight into possible payment arrears of suppliers subject to taxes.
3. Purchases of drinking water and paper in excess of NAf 50,000 are not put out for public tender.
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Findings per ministry
4. Because all telephone, water and electricity costs are charged to the FS budget, the FA has no insight into costs
per ministry and building. There is no exchange of information between FA and FS.
5. Insufficient internal control measures aimed at determining the completeness of revenues from the Census
department.
Revenues
6. The rates charged by the Census department did not all agree with the fee ordinance. In the interim all prices
have been brought in line with the fee ordinance
7. Not all products of the Census department have been included in the fee ordinance. In the interim the missing
products have been added.
Ministry of Health, Social Development and Labour
1. The legal time frame is in most cases not adhered to and, in the case of employment permit requests for bar girls,
fewer documents are submitted than stipulated by law.
Employment permits
2. Stipulated documents and internal procedures are missing from client files.
Granting assistance and PP cards
3. Internal control to ensure the correctness of amounts to be paid in assistance is inadequate; there is no
connection made between the payment list and registration of the requests handled by the Welfare department.
4. The procedure related to approving the granting of assistance and PP cards is a long one. The internal control
activities of the VSA controller and the chief of policy implementation of SOD are not apparent.
Ministry of Justice
1. Values indicated by importers are not checked periodically by Customs.
Excise duty revenues
2. The automated customs system for the returns on fuel on the part of importers cannot process the return of a
new importer.
3. There is no clear distinction between 'subsidies’ and ‘financial contributions’. There is no formal arrangement for
‘financial contributions’.
Ministry of Tourism, Economic Affairs, Transport and Telecommunications
1. The database of companies requesting an economic permit on an annual basis is corrupted.
Revenues from annual economic permits
2. The completeness of revenues from the concession granted the BT&P is not subject to internal control.
3. Compliance with the subsidy ordinance is inadequate.
Granting of subsidies
Ministry of Housing, Spatial Planning, Environment and Infrastructure
1. The domain manager does not have reliable information on the government’s inventory of land. No connection is
made with the cadastral registry.
VROMI permits
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Findings per ministry
2. Application forms for various permits, with the exception of construction permits and Nuisance Ordinance
permits, are missing. Furthermore, procedures are neither formalized nor structured. In most cases the section
related to safety in the Building Permit Evaluation Form was not completed.
3. As the result of an entry error, fees are consistently calculated incorrectly.
Revenues from building permit fees
4. Compliance with the subsidy ordinance is inadequate.
Subsidies
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Appendix 2 Errors and uncertainties noted in the 2011 Sint Maarten Annual Financial
Statements
Tables 9 and 10 provide a summary of all reliability errors and uncertainties we noted in the 2011
Sint Maarten annual financial statements. Table 11 provides a summary of the nonconformities
related to the content of the annual financial statements in relation to the National Government
Accountability Ordinance.
Table 9 Errors in the 2011 Sint Maarten Financial Statements.
No. Description In NAf
1. MVA (tangible fixed assets) valued too high, since depreciation in the past is not taken into account. Cannot be
determined
2. Bank balance Crime Fund are not accounted for in the Annual Financial Statements 2,265,254
3. Absence of provisions for future costs due to VUT (early retirement) and cost-of-living allowance. Cannot be
determined
4. Provision for SEI project costs too high. 5,746,950
5. Provision for costs of setting up immigration chain too high. 3,673,000
6. Erroneous categorization of costs and revenues. 15,520,043
7. Off balance sheet liabilities. Inaccurately listed SZV debt 22,709,000
Total errors 49,914,247
Table 10 Uncertainties in the 2011 Sint Maarten Financial Statements.
No. Description
1. Valuation and distribution of MVA (tangible fixed assets) due to a lack of property administration and absence of recent valuation
report for plant under construction.
2. FVA, long-term study financing. No substantiation of the amount of the receivables and the provision created.
3. Accounts receivable, after deduction of provision, uncertain due to the lack of underlying specifications and reconciliations.
4. Cash resources. No confirmations from banks.
5. Short-term debt. Lack of APS documentation.
Short-term debt, APS due to provision for back-service pensions.
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No. Description
Short-term debt, AR. Lack of balanced creditor accounts.
6. Short-term debt. No definitive determination of division of assets as yet.
7.
7a
Absence of specifications and substantiation for:
Cost reserves and other payment obligations.
7b Cost provision.
7c Other obligations.
8.
8a.
Revenues:
Tax revenues Completeness and categorization
8b Bank license fee. Lack of audit report for the 2011 CBCS annual financial statements.
8c Lack of legal basis for charging remuneration for 'Casino Controllers'.
8d Income from business license fees. No reconciliation between general ledger and the administration of the ministry of tourism,
economic affairs, transport and telecommunication
8e Income domain management. Lack of property administration.
8f BTP income, lack of audited BTP annual financial statements.
8g Tax revenues. Unclear source
Other income. Lack of substantiation
9. Personnel costs. Lack of sub-administration and underlying documents.
10. Costs from purchase of goods and services, including health care costs of PP patients and BZV insured parties. Lack of underlying
documents.
11. Subsidies. Lack of underlying documents.
12.
12a.
Other uncertainties:
The SOAB could not review the notes or the list of resolutions of the meetings of the Council of Ministers.
12b. Section 11.5 of the annual financial statements. The SOAB has not received sufficient supporting documentation.
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Table 11 Nonconformities related to the National Government Accounting Ordinance
No. Description
The annual financial statements are not in compliance with the National Government Accounting Ordinance:
1. Investments funded by third parties and the financing thereof are not accounted for in the annual financial statements (article 4
paragraph 2 and article 29 sub b).
2. Schedule (article 18, sub c, n and article 20) National Government Accounting Ordinance.
3. Lack of detailed list of revenue and expenditure for the period October 10, 2010 through December 31 2010 per economic
category and function, (article 18, sub c, and article 20) National Government Accounting Ordinance.
4. Lack of detailed list of revenue and expenditure for the period January 1, 2011 through December 31 2011 per economic category
and function, (article 18, sub c, and article 20) National Government Accounting Ordinance.
5. No overview of personnel expenditures (article 18, sub 8) National Government Accounting Ordinance
6. Insufficient overview of the financial position of income and liabilities of the collective sector (article 21) National Government
Accounting Ordinance
7. Lack of overview of the (long term) financial loans of the collective sector as well as a lack of overview (long term) debt issued by
the collective sector (article 18, sub I and j).
8. No schedule for assessments of previous fiscal years including expected tax revenues related thereto (article 29, sub c).
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Appendix 3 Scores per PEFA main indicator
PEFA indicators Baseline
2010
Goal
2011
Realized
2011
Goal
2015
Reliability of budget
1 Expenses compared to adopted budget for the country. D D B! C
2 Expenses compared to adopted departmental budgets. D D n.s. C
3 Income compared to adopted budget for the country. D D C! C
4 Payments in arrears. D D D C
Completeness and transparency
5 Budget breakdown B B B B
6 Completeness of information in budget explanation. B B B A
7 Income and expenditure flows outside of the budget. D+ B D+ A
8 Insight in financial risks zbo’s and government nv's. D D D C
9 Public access to financial budget information. D D D A
Budgeting according to policy
10 Participation in annual budget process. D+ D+ D+ B
11 Multi-year estimates according to policy. D+ D+ C+! B
Accuracy and internal control of budget implementation
12 Clarity regarding tax obligations. C C C+! B
13 Effective registration of those subject to taxes and tax
assessments.
D+ D+ C! B
14 Effective collection of tax assessments. D+ D+ D+ B+
15 Predictability of spending limits when entering into obligations. D+ D+ D+ C+
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PEFA indicators Baseline
2010
Goal
2011
Realized
2011
Goal
2015
16 Documenting and managing bank balances, loans and guarantees. C++ C+ B! B
17 Salary administration management. D+ D+ D+ B
18 Public bids. D+ D+ D+ B
19 Internal procedures in financial administration. D+ D+ D+ C+
20 Internal audits. D+ D+ C+! B
Administration, documentation and reporting
21 Frequency and promptness of financial closing and reconciliation
procedures.
C+ C D" B
22 Spending (financial) resources by on education and medical
institutions.
D D D B
23 Quality and promptness of implementation reports. D+ D+ C+! B+
24 Quality and promptness of annual financial statements. D D D B
External supervision and control
25 Scope, type and recommendations of external control by the
General Audit Chamber.
D C+ D+! B+
26 Supervision of Parliament over the creation of the budget. D+ C+ D+ B+
27 Supervision of Parliament of the General Audit Chamber reports. D D D B
28 Scope, compliance and supervision of corporate governance. D+ D+ D+ C
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Appendix 4 Main standards for assessing the quality of information
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AR (2012a). Letter to the Minister of Finance with response to his letter of December 12,
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Cft (2013b). Letter of the Cft to the Minister of Finance on a statement regarding taking on
loans. Council of financial supervision, February 2013, Philipsburg: In-house document.
Cft (2013c). Advisory note from the Cft to the Minister of Finance regarding the fourth
implementation report 2012. Council of financial supervision, March 2013, Philipsburg: In-
house document.
Cft (2013d). Advisory note from the Cft to the Minister of Finance regarding the loan
procedure and capital account 2013. Council of financial supervision, April 2013,
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National Government Accounting Ordinance (2010), 2010 GT no. 23
Finance (2011). Letter from the Minister of Finance to the General Audit Chamber
regarding ‘Issuance of Government Bond’. Ministry of Finance, Philipsburg: In-house
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USONA (2012). 2011 USONA Annual Report. SONA foundation, May 7, 2012. Curaçao: In-
house document.
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BC agenda and resolutions: agenda item 29, arch.nr 7084-07, FBB no. 1263-07 signed
December 12, 2007
National Ordinance on the General Audit Chamber of Sint Maarten (2010), GT 18
National Ordinance Security Services (2010), GT 4
Auditor’s report and SOAB report
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