Examination of Witnesses (Questions 80-99)
FOREIGN AND
COMMONWEALTH OFFICE
& DEPARTMENT FOR
INTERNATIONAL DEVELOPMENT
10 DECEMBER 2007
Q80 Mr Davidson: Now you are talking
about it. It has never occurred to you before then?
Sir Peter Ricketts: This Report
has redoubled our efforts on the issue.
Q81 Mr Davidson: So if this Report
had not been produced, your efforts would not have been redoubled?
Sir Peter Ricketts: They were
continuing but this has been a helpful impetus to us to do more.
Mr Davidson: Most of what we do is for
your own good, even though it might not appear that way at the
time.
Chairman: You are allowed to smile, by
the way.
Q82 Mr Davidson: We will try and
stop that then. You are not here to enjoy yourselves, as I am
sure you realise. Moving to St Helena, if I remember correctly,
Dr Shafik mentioned that you were going to be helping St Helena
develop a financial services industry.
Dr Shafik: No. To be honest, we
are helping them draw up legislation. They currently do not have
a significant financial sector and we do not see it as a major
source of comparative advantage for them. We are setting our hopes
more on the tourism sector.
Q83 Mr Davidson: In terms of comparative
advantage, it is difficult to identify anything that some of these
jurisdictions have as a competitive advantage except the ability
to have lax standards and low tax. Bermuda and Cayman Islands
have now built it up and I can see the comparative advantage there
now but some of these others, apart from not bothering too much
where the money comes from and not pressing for information on
who actually owns the money, what is exactly the comparative competitive
advantage of Montserrat, for example, when it comes to financial
services?
Dr Shafik: Many of them do have
a significant comparative advantage in the tourism sector, which
is the fastest growing industry in the world.
Q84 Mr Davidson: Let me stick with
financial services. I can understand why you would want to move
it on to something else. Let us just deal with financial services.
What competitive advantage do they have in financial services
in Montserrat?
Dr Shafik: I think not a lot,
which is why the Governor has restricted the growth of the industry.
Q85 Mr Davidson: I am sorry. In Anguilla
then?
Dr Shafik: Anguilla is not my
...
Sir Peter Ricketts: The point
is that if we have given these territories autonomy of governance,
it is really for them to decide how it is that they are going
to diversify their economies.
Q86 Mr Davidson: Up to a point, surely,
because if this goes pear-shaped, who ends up being ultimately
responsible? Not you but us collectively, is it not, really?
Sir Peter Ricketts: Yes.
Q87 Mr Davidson: So we do have a
bit of an interest in these matters.
Sir Peter Ricketts: Absolutely.
We do.
Q88 Mr Davidson: What concerns me
is that, if you look again at paragraph 2.18, about the deficient
public accounts, I am surprised to read here that though Bermuda
central government departments are up to date, other public bodies
had not produced accounts since 2002 and 2003, and then we see
the Auditor General of the British Virgin Islands estimates her
staffing levels are one third below complement. These are in locations
which are meant to be leading examples of financial probity and
excellence and yet they cannot actually look after their own books,
so what are they doing with other people's?
Sir Peter Ricketts: You rightly
point to the need to improve their public accounts and to get
more people in to be able to do that.
Q89 Mr Davidson: You are redoubling
your efforts, I take it.
Sir Peter Ricketts: Yes, sir.
Q90 Mr Davidson: Have you ever considered
putting people directly into these locations? If the Bermuda Auditor
General cannot produce public bodies' accounts, is that not an
argument for saying perhaps the National Audit Office should be
responsible for these locations also? I appreciate that it would
be an onerous task for staff of the NAO to go out to these places
but, nonetheless, it would ensure a degree of probity and assurance
to those of us in the United Kingdom.
Sir Peter Ricketts: In the case
of Bermuda, Mr Davidson, they are a wealthy territory and they
are capable of improving this performance themselves. I do not
think this is adequate performance—
Q91 Mr Davidson: Why have they not
then?
Sir Peter Ricketts: I understand
that they are bringing in private sector expertise to improve
their record on public accounts.
Q92 Mr Davidson: They have not up
to now.
Sir Peter Ricketts: My understanding
is that they are now doing it.
Q93 Mr Davidson: This is not acceptable,
is it, that public bodies have not produced accounts since 2002
and 2003? That is not acceptable but you have accepted it. You
have not done anything about it.
Sir Peter Ricketts: I would say
it is not primarily for us to do something about it. It is primarily
for the government of Bermuda to do something about it. This is
a wealthy territory with resources of their own. I think it is
primarily for them to do something about it. I agree that they
should and I understand that they are now bringing in additional
support from the private sector to do it. I do not necessarily
see that it is for the British government to put in people to
audit the accounts of the Bermuda government, unless they ask
us to.
Dr Shafik: For the poorer territories
which we give budgetary aid to, we have quite a rigorous process
of monitoring their expenditure, their audit. We do a rigorous
analysis with 28 indicators called PEFA, we do a fiduciary risk
analysis thoroughly every three years, we do an annual statement
of progress on how they are managing their own resources, so we
do have a process for the smaller territories.
Q94 Mr Davidson: In paragraph 2.20
it mentions that in some of the small communities, it says here,
"the auditors are more directly exposed to pressures from
auditees and local interests" and basically it goes on to
say, in suitably guarded language, that they are pressed to produce
results which are not really justified. Why are you allowing this
to take place?
Dr Shafik: We are not allowing
it in the places where we are putting UK taxpayers' money through
the budget, where we do our own reviews externally.
Q95 Mr Davidson: What then does overseas
territory status means in these circumstances? Do we have no responsibility
for making sure that their books are correct or that their money
is not being stolen or anything like that?
Dr Shafik: Yes, we negotiate their
budgets every year, we have agreed a set of benchmarks—again,
I am speaking for the ones that do not have their own resources
and are not responsible for their own economic management. For
those we do a mid-year review, we have quarterly visits by DfID
staff to make sure they are using their resources properly and
we do a full fiduciary risk analysis.
Q96 Mr Davidson: Are you happy with
the situation where in the Turks and Caicos the only person in
the audit office with any accountancy qualification is the chief
auditor? It does not seem to me to be a very professional outfit.
Sir Peter Ricketts: No, I am not
happy about that.
Q97 Mr Davidson: So what have you
done about it?
Sir Peter Ricketts: For a start,
we have our lever with the Turks and Caicos Islands and others
of the borrowing guidelines that do not allow them to borrow beyond
a certain limit given the risk that debt might also come back
to this country as a contingent liability. We have exercised that
and we continue to do that. We have required from them regular
financial reporting so that we can see the data and we have told
them that they need to improve it.
Q98 Mr Davidson: How can you have
any faith in the regular financial reporting when they do not
have any more than one accountant in their audit department?
Sir Peter Ricketts: The answer
is we need to get more auditors and more professional staff—
Q99 Mr Davidson: Redoubling of the
effort is being called for, unless I am mistaken.
Sir Peter Ricketts: These are
tiny places with small populations and difficulty recruiting the
right people.
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