Case Study Improving Public Sector Governance in the Cook Islands

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1 Case Study Improving Public Sector Governance in the Cook Islands Introduction There is a growing concern among the public at large over the abuse, waste and mismanagement of public resources and funds by government officials and agencies within the public sector in the Cook Islands. In some cases, corruption and fraudulent activities within the public sector have also been identified while some still go undetected. These practices in my opinion have resulted from poor internal controls, lack of appropriate legislation, inadequate financial instructions procedures and guidelines, absence of ethical standards, attitudes and behavior of individuals in power and the lack of accountability and transparency procedures. As a result of these improper practices, the public as whole have loss its confidence and trust in the public sector. More importantly, the normal citizens/taxpayers particularly private sectors are using this reason as a defense not to pay taxes. There is a common saying among individuals why should we pay taxes when it will only pay for extravagant life style of government officials. The basis of this case study is to raise and share various issues concerning public perception of good governance in the public sector in the Cook Islands and the role of the Audit Office in ensuring that the principles of good governance are upheld. The Audit Office s Role and Authority The Cook Islands Audit Office exists as a constitutional safeguard to maintain the financial integrity of the country s parliamentary system of government, and to assist government in the effective, efficient and economic use of resources. The Audit Office s role is to assist Parliament to strengthen the effectiveness, efficiency and accountability of the instruments of government. The Audit Office, in theory, is independent of the Executive branch of Government. In actual practice, this is not so. The statutory mandate for the functions of the Audit Office is enshrined in the Constitution of the Cook Islands, under Article 71 and the Office of Public Expenditure Review Committee and Audit Act 1995/96 The term governance is used to describe a range of inter-related activities and controls. While some writers use it in the international context or to refer to business affairs, this address focuses on its use at the national level, as it relates to political, economic and civil institutions. At this level, four understandings of governance can be identified: 1. The management of public resources, or public administration. 2. The activities of government or the system of governing.

2 3. Government s interaction with civil society and citizens in general. This definition introduces actions directed towards government as well as by government. This includes the constraints and accountability mechanisms under which parliamentarians operate. 4. The interaction of traditions, values, institutions and processes that shape society. In this definition, government is less central. While still an important player in some interactions, it may be marginal or absent in others. A similar approach views governance as the exercise of power in society. In accordance with these definitions, Good Governance is the public service s effective management of taxpayers funds and public interests for the purposes of a cost efficient maximization of delivery of services to the public. It is also the Parliament s hearing the voices of the people and enacting and amending laws to ensure the health, safety, and welfare of our citizens. The Cook Islands The Cook Islands is made up of 15 small islands. Eleven of these islands are inhabited. Rarotonga is the capital of Cook Islands and is the main business centre. The Cook Islands gained independence on the 4 th August 1965 and have remained self independence since then. The Cook Islands has a population of 18,000 people living in the Cook Islands, however, there is also about 50,000 Cook Islanders living in New Zealand and Australia. Like any other Pacific Islands, the Cook Islands is a popular tourist destination, well known for its tropical white sandy beaches, blue lagoon and its culture. For this reason, the Cook Islands rely heavily on the tourism industry and have become the major revenue earner for the Country. The major business activities are driven by the private sector and complimented by the public sector. Background The Cook Islands Government operates under a democratic parliamentary system that comprises of 24 members of parliament. Cabinet is made up of six Cabinet Ministers that are elected by the government of the day. Each Cabinet Minister is responsible to a number of portfolios, government ministries and agencies. The reform process took place in the mid nineties ( ) and to a large extent was adopted from the New Zealand module. The Office of the Public Service Commissioner (PSC) and the Office of the Prime Minister (OPM) were responsible for implementing the reform program with the assistance of the Ministry of Economic Management and Finance (MFEM) and the Office of the Solicitor General.

3 As a result of this process, a number of radical changes took place including a major amendment of the Public Service Act, Ministry of Finance Act and the Public Expenditure Committee and Audit Act. Other changes included: Reduction of powers and responsibilities from the Public Service Commissioner. Downsize of the public service. Changes in salary scale in the public service. Hiring and firing was the responsibility of Heads of Ministries (HOM)/CEO HOM and CEO s were given more powers and were virtually responsible for administering their individual entities. Business/Corporate focus and oriented. Budgets based on service delivery and outputs. Change from cash accounting to accrual accounting. The Problems Although we welcome the introduction of the reform process, little did we know of the nature and types of problems that came with the process. HOM s and CEO s had substantial amount of powers and responsibilities to virtually do anything with regard to public resources and public funds. They could approve their own travel, incur expenditure, purchase goods and services, engage consultants, hire and fire, make decisions, reward staff bonuses, accept tenders and so forth. The HOM s are selected and appointed by Cabinet but have an employment contract with the Public Service Commissioner. A performance agreement is signed with the Minister. With the autonomous powers given to HOM s, we appreciated the flexibility and opportunity for innovation and creativity for HOMs to pursue. However, we did not realize that we had also built an environment that was conducive to waste, abuse and mismanagement of public resources and public funds. A classic example of these were reflected in decisions that moved away from priority sectors such as health and education and into other sectors where large contracts and projects offer prospects of bribes, kick-backs, or secret commissions. Such decisions were based on opportunities for bribes, kickbacks and greed rather than by priority and needs. In other instances, the recruitment of employees was based on nepotism and favoritism rather than merits. Employees who did not follow instructions directed by HOMs that engaged in corruptive practices and those who reported corruptive practices were threaten and in most cases were fired. Other areas of concern are the lack of legislation, financial instructions and guidelines, and financial management procedures that makes HOMs accountable for their actions. For example, there are no provisions in the

4 Finance Act that penalizes the HOMs for overspending its budgets or deviating from priority needs. This encourages HOMs to do what ever they want to do as they know that they will not be held accountable for their actions. Consequently, all of these factors had a detrimental impact on the delivery of goods and services to the public. Lack of MPs Leadership Code of Conduct and Public Service Code of Conduct There is a dire need for the establishment of respective Codes of Conduct for Members of Parliament and the Public Service. These codes should be written and contain clear definitions of prohibited activity. The delay by Government in implementing these codes is not conducive to good governance. Anti-Corruption and Auditing There are several ways in which auditing plays a critical role against corruption. An effective audit can identify the waste and abuse of public funds and expose non-transparent decision-making that is not in the public interest. An effective audit can therefore be a powerful tool to combat corruption. The Audit Office s Anti-Corruption Efforts The Audit Office has been effective in bringing to prosecution both civil and criminal cases arising from its audit reports. For example, the Audit Office has brought to prosecution the following cases: 1. A Government official in-charge of the Government liquor supply and sales was convicted for theft, bribery, and receiving secret commissions of over $100, Thefts committed by five employees from the outer islands Government savings bank branches and post offices (total loss approximately $250,000). 3. Currently in progress are cases relating to double dipping (receiving two Government source salaries), fraud, theft, and receiving secret commissions (total loss approximately $100,000). 4. Also currently in progress is a case relating to receiving secret commissions involving the purchases of machinery on behalf of Government (total loss approximately $150,000). 5. Two Island Secretaries have been suspended. One was terminated without pay awaiting prosecution and the other suspended for unauthorised cash disbursements. 6. A high-ranking Government official is currently facing charges of forgery and receiving secret commissions (total loss approximately $25,000). 7. Last year, a Member of Parliament lost his seat by receiving a public service salary.

5 8. Arising from audit reports, the Attorney General has recently filed an application with the court for a declaratory judgement in relation to two members of Parliament having allegedly received salaries from the public service whilst active Members of Parliament. Need for stronger and more effective legislation with harsher penalties prevention of White Collar Crime To strengthen the Audit Office s capabilities, it is strongly recommended that additional resources be allocated for the formation of an Anti-Corruption Unit. Specific and meaningful fines and penalties as a means of deterrence should be included in amendments to the Civil List and Electoral laws as well as the MFEM Act. Absent meaningful fines and penalties, there is a lack of disincentive for politicians and public officials to engage in illegal or unsound practices. For example, under current law, after an MP has lost his seat due to breaches of the Electoral and Civil List Acts, he should not be permitted to stand for reelection in the future. During the past several months, representatives from the Audit Office have worked closely with Crown Law Office staff with respect to legislative amendments to both the Public Expenditure Review Committee and Audit (PERCA) Act and the Ministry of Finance and Economic Management (MFEM) Act. From the Audit Office s perspective, the essential amendments to the PERCA Act required concern the broadening of the Audit Office s powers to the extent that these powers are the same as those afforded to the New Zealand Serious Fraud Office (SFO). Absent law enforcement agency powers, the Audit Office is handicapped in its efforts to combat Government fraud, waste, and abuse. In the past, the Audit Office has performed substantial work cases before handing them over to the Police Department where the cases have been ineffectively and inefficiently handled. With respect to the MFEM Act, Audit has suggested that substantial fines and penalties be introduced in an amended Act. Absent substantial fines and penalties, the Act s financial management and reporting requirements are virtually unenforceable. CONCLUSION It is my view that Good Governance will only survive in a climate of political stability with a strong judiciary and law and order systems, and the political will to bring prosperity and well-being to our citizens. That is the challenge that I would like to bring to us all.