Accounting Reform Key To Restore Govt ‘Credibility And Trust’ – Bahamas Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government must urgently move to an accrual-based accounting system to regain "credibility and trust" in its Budget projections, a governance reformer said yesterday.

Robert Myers, a principal with the Organisation for Responsible Governance (ORG), told Tribune Business that it will be impossible to get a true grip on the Government's financial position if it continues to operate a cash-based accounting system.

Speaking after Moody's threatened to downgrade the Bahamas' creditworthiness to 'junk' status, Mr Myers said this nation needed to properly execute on a fiscal consolidation plan rather than simply keep talking about it.

And he warned that it would be "downright irresponsible" for the Minnis administration to launch more social programmes, such as National Health Insurance (NHI), until the Government resolved its deepening fiscal crisis.

"We've got to restore the credibility of the Government and public service," Mr Myers told Tribune Business. "Again, that goes to the continuing position I have: A trustworthy Budget and a trustworthy accrual-based accounting system that better allows the Government and the public to understand what the fiscal situation is.

"That's what's wrong with cash-based accounting. No responsible accountant would ever tell you that you should run off a cash-based accounting system. Not in a modern world, with credit and complex lending structures. You can't do it."

The Government currently operates a cash-based accounting system, which only recognises revenues when they come in and expenditures when they become due for payment.

It fails to capture spending commitments that the Government may have entered into, but which have yet to fall due, meaning that the current public sector accounting system does not reveal the full extent of its liabilities.

Chief among these liabilities are unfunded civil service pensions, which are currently funded via a 'pay-as-you-go' type of arrangement in the annual Budget. The KPMG accounting firm previously disclosed that these liabilities, which it currently estimates at around $1.5 billion, are set to increase to $2.5 billion by 2022, and $4.1 billion by 2032, unless essential reforms are enacted.

These liabilities would push the national debt towards $8.5 billion if included in the calculation, a figure almost equivalent to total annual Bahamian economic output or a 100 per cent debt-to-GDP ratio.

Mr Myers, meanwhile, said the need for accrual-based accounting had also been reinforced by revelations that the former Christie administration had engaged in $234 million worth of deficit spending during the May 10 general election quarter.

Tribune Business derived this figure from the Minnis administration's $500 million 2016-2017 full-year deficit estimate, and by the Central Bank pegging the deficit for the first nine months at $266 million.

Mr Myers said some of that $234 million figure "could have been accrued and come due", meaning spending commitments that had been entered into by the Government months before, but which required payment prior to the general election.

"It seems to me that what happened is that they [the Christie administration] added a major increase in spending in that last quarter," he said of the $234 million figure.

"It does emphasise the necessity, the ongoing necessity, for an accrual-based form of accounting, a Fiscal Responsibility Act, a Freedom of Information Act and a Whistleblowers Act.

"It's high time all of this stuff changes, and we get accountability and responsibility put in place. If we can't get them [the political elite] to understand that, and do it, and do it immediately, and with the utmost vigour, we are doomed."

Mr Myers described the $234 million deficit seemingly incurred in the three months to end-June 2017 as "a disgusting, obscene number", and he questioned the "deafening silence" from senior civil servants over the former government's pre-election spending binge.

Suggesting that they "have a fiduciary responsibility" to the Bahamian people as managers of government ministries, departments and agencies, the ORG principal said he was "infuriated" that top officials appeared to simply have gone along with the pre-election spending.

"We've got to create credibility and accountability in the public service or we will fail," Mr Myers told Tribune Business. "The writing on the wall has just got larger, and if we don't get it we will deserve what we get."

Turning to the Moody's review, he added: "What we've got to start doing is looking at the Bahamas as if it is a business, and one in need of reform.

"It's like going into a bad business. You've got to start running cash flow analyses, start making projections and be realistic about how to deal with these things; cutting costs and increasing revenue. I don't see any kind of dynamic modelling to get us out of our current situation."

Mr Myers again reiterated that the Government should place social programmes, such as NHI, on hold until either the fiscal situation improved or it showed that the country could still afford them within the context of a consolidation plan.

"You can't start putting on more social benefits when the country is going under," he argued. "It's irresponsible. I understand that there's a lot of people who do not want to hear that, but all these benefits don't work unless you get your house in order.

"If you're a business or family, you can't buy health insurance if you can't buy groceries. We've got to become more practical and sensible about our approach, and more business-like.

"Until we've worked our way out of this crisis, don't lick you finger, stick it in the air and say we need NHI. If you haven't done the modelling, that's downright irresponsible."

Mr Myers said the Government also needed to include its plans for addressing loss-making corporations, such as Bank of the Bahamas, ZNS and Bahamasair, in its fiscal modelling.

"What we know in business, and as businessmen, is that talk is cheap," he added. "When the rating agencies start to see we're getting serious, we're likely to see a more favourable rating.

"We can't talk about it; we've got to do it. That's what they're looking for. They've heard the talk, but are looking for the walk.

"It [the Moody's review] emphasises the fact that we have serious work to do, and other people are taking it very seriously, as we should. Reality is not pleasant, and we have to get on with it, roll up our sleeves and get our heads down."

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Accounting Reform Key To Restore Govt 'Credibility And Trust' - Bahamas Tribune