Business
Why Modern Budget Format Not Working In The Cooks
It's highlighting a number of weaknesses
In a region still struggling with reform, a lot of attention has focused on the country that started the process‹the Cook Islands. At the centre of the reform efforts in the country was the Ministry of Finance and Economic Management (MFEM) Act. Introduced at the start of the 1996 economic crisis, MFEM was supposed to stop deficit budgeting and increase transparency and accountability. Beginning the same year, two thousand out of 3600 workers were sacked from the region's most bloated public service. New laws‹and the mass sackings‹were handled by a New Zealander, Lloyd Powell.
A combative financial secretary and self-described "change merchant", Powell attracted controversy for a few years before going on to a similar position‹and challenges‹in the Solomon Islands. Mass sackings produced big savings. Cook Islanders, however, have not seen obvious benefits from output budgeting.
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In 2000, for example, agriculture minister Robert Wigmore grandly announced exports would increase to US$6 million per annum within three years.
By 2002, exports were still struggling at US$120,000. Wigmore dropped his Six Million Dollar Man pose without explanation. Other ministries content themselves by copying and pasting vague "Strategic Result Areas" and "workplans" from one year to the next. Overall, Gross Domestic Product (GDP) rose from about $US4800 to US$6000 per person between 1996 and 2001. Real GDP is projected to rise to US$7200 by June next year‹a 50% increase.
However, even finance officials admit that this probably has as much to do with a "modest" population decrease (more than 6000 out of 18,000 residents migrated over the same period) as economic growth.
Nor have outputs increased transparency. In fact, there is even less transparency under output budgeting than the old cash system. No better illustration of this argument was a rare criminal case against a senior civil servant, Edward Drollett. Prosecutors last month said Drollett, a former chief of staff to former Prime Minister Terepai Maoate, appointed a newly formed company to handle the office accounts. Drollett approved payments well above previous levels.
Prosecutors alleged US$15,000 was kicked back to Drollett, often on the same day as payments were made to the accounting company. Drollett's accountant, Edward Friend, pleaded not guilty to charges of breaking the Secret Commissions Act. So did Drollett. They also pleaded not guilty to forging documents to conceal the kickbacks after investigations began.
As soon as the trial began, however, both men suddenly changed their pleas to guilty. The hearing was adjourned to allow preparation of a probation report for sentencing. Then, three days later, Drollett changed his plea again‹back to not guilty. He also dumped his lawyer and appointed a new one.
Justice Norman Smith, another New Zealander, grimly agreed to the two plea changes. But he turned down another application for the case to be switched to trial by jury, instead of a judge. Drollett's associate, Friend, did not change his plea and the historic case appears back in court in September. Under the old cash-based system, the extra payments would have been immediately noticeable under "professional services" along with other inputs such as "stationary" and "fuel."
Under the new laws, however, an output like "maintenance of effective accounting and information systems in accordance with the MFEM Act 1995-96" could cover a small range of sins and‹allegedly‹did.
Significance of the case to reform efforts in the Cooks?
It's the first time since the infamous "fly-in voters" case of 1978 that a senior public servant has been charged with such a serious crime. But not the first time the media have asked questions about abuse of power. Mostly, such questions are simply ignored. Pushed hard on an increasing reluctance to comment, even former Financial Secretary Powell lashed out at local journalists, saying they lacked the "intellectual capacity" to fully understand the act.
His successor, another New Zealander, has been similarly dismissive of criticisms by the media about output budgeting and the lack of input detail. Only a parliamentary committee would have access to such details, he said in late 2001.
Input "information will not be available to the public and the media except insofar as the committee uses the information to ask questions of each ministry," said Financial Secretary Kevin Carr. Carr's comments ignored a report made a month earlier by no less than credit agency Standard & Poor's, who agreed with the local media.
"Public accounts without details of expenses by input type also prevent expenditure assessment (for example on personnel/wage outlays)," said agency analyst, Ping Chew, in an October 2001 report.
By that stage, it was already over a year since the daily Cook Islands News began reporting on questions about Drollett buying stationery and training services from his own family companies, and about high accounting fees. Overall, said Chew, "there is a general lack of budgetary control and output/performances analysis due to a shortage of trained financial and audit staff, and ineffective parliamentary scrutiny."
As financial secretary, Carr could be expected to have read the Chew review. Instead of agreeing to flaws in the output format, however, he rolled out what some officials consider the ultimate argument.
"This is similar to the system in operation in New Zealand." Similar systems, perhaps, but very different politics. When quizzed by the media about accounting fees, Drollett's only comment before hanging up was, "I don't want to talk with you."
An official taking that approach would be roasted alive by the New Zealand media and voters. In the Cook Islands, however, silence is seen as a clever public relations approach. Maybe not so clever. Now prosecutors allege that 'no comment' is also a good way of avoiding the law. Or at least trying to.
