Potential Understatement of Liabilities by Cayman Government by $2.4 Billion

During a recent Standing Public Accounts Committee hearing, the Cayman Islands’ Financial Secretary, Kenneth Jefferson, disclosed that an over $2 billion post-retirement health care net liability was not reported in the government’s financial statement for the fiscal year 2020. The exclusion of this information allowed the government to present a more favorable financial position, as including the liability would eliminate current surpluses and potentially lead to over $100 million in losses.

Jefferson defended the decision, citing the impact on the government’s net assets and the potential for non-compliance with certain ratios as key factors. He claimed that including the liability in the balance sheet would effectively reduce the government’s current net assets to zero, creating panic and resistance towards making such disclosures in both present and former governments.

This omission contributed to the auditor general issuing an “adverse opinion” on the government’s financial statements, noting that the unrecorded post-retirement health care program liabilities could potentially affect the reported surplus. Jefferson admitted that were these liabilities accounted for properly, the current surpluses in the financial statements may turn into losses in excess of $100 million.

While the financial secretary justified the omission as a difficult decision for governments to make due to the fear of non-compliance, the auditor general insisted that this did not erase the fact that it is a liability that needs to be reported. The auditor general also highlighted that the healthcare and pension benefits offered by statutory authorities may increase the deficit further, necessitating immediate policy decisions for the government’s future.

Finally, it was revealed that although the UK government has access to these financial statements, they have not raised any concerns. The financial secretary explained that as they have always reported a surplus, they have not received any feedback from the UK government about the potential for a loss situation or negative net assets. However, it was suggested that if the $2.5 billion post-retirement health care benefit liability was properly documented, government’s net assets would be reported as zero and create hundreds of millions in deficit instead of surpluses.