Feb 2006 Financial News

Jamaica - $1b ERROR........Finance ministry directive robs National Health Fund of cash

Feb 07, 2006

A finance ministry directive which contravenes the National Health Fund Act, resulted in revenues of $1.1 billion not being forwarded to the Fund for the financial year 2003/4, Parliament's Public Accounts Committee (PAC) learnt last week.

The disclosure, revealed in the auditor-general's 2003/4 report, earned the ire of Opposition members of the PAC who accused the government of pilfering the health ministry's money, and rejected a proposal by finance ministry officials to settle the debt over 10 years, beginning in the financial year 2005/6.

"That can't be," said Opposition PAC member Delroy Chuck. "It seems to me that it must be repaid forthwith." The PAC, he said, should advise the Ministry of Finance "that this unlawful directive... must be corrected. It doesn't look good".

Dr Horace Chang, acting as PAC chairman for Audley Shaw who is abroad, said it seemed to him that the finance ministry was balancing its own books at the expense of the health services.

The National Health Fund Act stipulates that all monies collected on behalf of the fund must be paid directly to the Fund.

But the Auditor-General in his report said that the Ministry of Finance and Planning had issued directives to the commissioners of customs and inland revenue that payment to the Fund, which was established on April 1, 2003, should commence on April 1, 2004, and a processing fee of 2.5 per cent should be charged on the gross amounts payable to the Fund.

"This directive, which contravened the Act, resulted in revenues amounting to approximately $1.1 billion not being forwarded to the Fund for the year 2003/4," the report states.

"This amounts to purloining money from the Health Fund to revenue," Chuck said.

His colleague member on the PAC, Abe Dabdoub, said the commissioners of customs and inland revenue were absolutely wrong to follow a directive by the minister which contravenes an act, particularly when the minister had not imposed it as a tax which has been gazetted and brought to Parliament.

Robert Martin, deputy financial secretary for the finance ministry's Public Expenditure Policy Co-ordination Division, said that Dr Chang's observation was totally correct, but the ministry was making arrangements to have the laws amended to allow for the collection of the processing fees.

He said that the commissioners of customs and inland revenue did incur administrative expenses to collect the fees. These had to be recovered, he said.

"So we recognise that we have in fact not done it properly," said Martin, "but we are putting steps in place to have the laws amended to allow for this. This is quite significant, and in terms of having the proper systems and internal controls in place, administrative measures have to be put in place by the commissioners of customs and inland revenue."

Martin said that there were two different issues, the 2.5 per cent processing fee for which the ministry was seeking the approval of Cabinet to amend the law, and the actual collection of the funds.

He said that in the meantime, the ministry, in order to recover some of the costs incurred in putting the system in place, would have budgetary provisions to take back the 2.5 per cent "and bill them for the administrative costs, which would solve the problem".

But Chuck suggested that the 2.5 per cent service charge should be waived until the regulations come into effect and provision should be made for the $1.1 billion to be repaid. "I don't see any other way in which it can be rectified," he said.

Dabdoub insisted that there could be no retroactive legislation or tax imposed, and pointed out that adding such an imposition would be illegal. "The courts will not uphold it," he said. "To go, and by some circuitous method, try and find some way to administratively impose what you intended to be a tax from the very outset would seem to me to be a very improper action on the part of the Ministry of Finance and Planning."

But Martin responded: ".we are not going to be retroactively asking for the law to be amended. That is something that we would never do. But what I can do is pay them the money which we have put in the Consolidated Fund and send them a bill for the services that we have rendered."

Rolda Grey, deputy financial secretary in charge of the finance ministry's Public Expenditure Division, said she had no record of any directive being given by her ministry for the commissioners of customs and inland revenue to pay the money into the Consolidated Fund.

But Auditor-General Adrian Strachan insisted that the ministry did give instructions and said his staff was searching for copies of the directive as they had the reference number and quotations from the correspondence.
Dabdoub wanted to know if the directive was still being followed since the $1.1 billion collection.

Martin responded: "The directives are still in force, and as we leave here we will withdraw them. But at the same time we will put provisions in place to repay those 2.5 per cent fees and we will submit our bill for cost recovery."

Asked by Chuck whether the proposals put forward by the Ministry of Finance weren't in continuing breach of the law, Strachan said it was a legal question best directed to lawyers. But he noted that the finance ministry was acknowledging that it erred.

The Jamaica Observer
Monday 6th February, 2006.
http://www.jamaicaobserver.com/news/html/20060205t210000-0500_98133_obs___b_error________finance_ministry_directive_robs_national_health_fund_of_cash.asp