By Roland S Tuitt, MBA, CPA
Introduction
During my tenure as Minister of Finance, I noticed that the government of St. Maarten was operating without a proper functioning internal control department. Thus I made an agreement with the SOAB (internal auditors of government) to get a professional on loan for 2 years. That person had the task to document internal control procedures, help evaluate employees, implement the internal control procedures and manage the department for a period of two years.
This was done to comply with:
1. The task of the Minister of Finance who is responsible for the design, implementation and maintenance of internal control and the fair presentation of financial statements
2. The PEFA (Public Expenditure and Financial Accountability) 5 year improvement plan agreed with the CFT
3. The pending evaluation of the Kingdom government that will take place in 2015.
However, the present Minister of Finance, in one of his first actions after being sworn in, broke the contract with SOAB and closed down the internal control department.
The consequences of his actions will lead to what in accountancy terms is called "an imposed scope limitation," which will cause the auditors to question the integrity of the Minister. It will also lead to an adverse opinion by the auditors which states that the obtained audit evidence is inadequate or inaccurate.
Control Mechanisms
As Internal Auditors of Government the SOAB should write a letter to Parliament informing Parliament about this matter. They can do this during their interim review of 2013, but it should be done immediately.
The Governor of St. Maarten who has a control function should have informed Parliament and The Kingdom Ministry of this deliberate imposed scope limitation by the Minister of Finance.
The CFT should have informed the Council of Ministers, Parliament, and the Kingdom Ministry of the deliberate imposed scope limitation by the current Minister of Finance. They probably will do this in their bi-annual report but that is too late.
The Audit Chamber can only act when they do the audit of 2013.
Based on the above it can be concluded that the control functions of various institutions did not function optimally.
Conclusion
Because of the scope limitation imposed by the Minister of Finance, the PEFA improvement plan cannot be carried out as agreed upon with the CFT.
The evaluation by the Kingdom Government in 2015 will be negatively influenced by the Minister’s actions. This will prolong the existence of the CFT after 2015.
The internal auditors SOAB will have to issue a disclaimer of an audit opinion or withdraw from the engagement of auditing the financial statements of 2013.
Since auditors base their audit on the strength of the internal control, the auditor will have no basis to rely on, which will cause them to resort to alternative procedures and make the audit much more expensive.
If an executive did what the current Minister of Finance did in the private sector he or she would be fired immediately. If this action had taken place in any other country, the Minister of Finance would have to resign. That is based on the fact that he has imposed a hindrance on the organization that has a negative effect on the task that has been given to him as Minister to design, implement and maintain adequate internal control.
"International Standards on Auditing 705" (ISA 705) states that the auditor should disclaim an opinion on the financial statements if there is a scope limitation imposed by management and the auditor should consider withdrawing from the audit.
Since the Minister of Finance is responsible for the fair presentation of the financial statements of the Government of St. Maarten, his actions have made it impossible to present those financials in a fair and timely manner.
The actions of the Minister of Finance (coming from an audit background) will have a negative influence on the entire Council of Ministers because their integrity will also be questioned.