~ Govt. willing to review claims of financial shortfall ~
PHILIPSBURG--Education Minister Wycliffe Smith said on Wednesday that while the School Board for Secondary Education SVOBE has not substantiated its claim for more subsidy from government, authorities are still willing to review the board’s claims of a monthly financial shortfall, but audited financial statements are required.
Smith made the statements during the Council of Ministers press briefing Wednesday in reaction to the administrative injunction proceedings filed by SVOBE against government, the summary proceedings of which were heard in court on Wednesday, April 17, and reported on in The Daily Herald the following day.
In the injunction SVOBE said the Ministry of Education, Culture, Youth and Sport is seriously at default where it concerns the financing of secondary education, as the remuneration granted to SVOBE does not cover its expenses by far. As a result of this SVOBE is currently in a vicious spiral and is heading toward bankruptcy, and may have to close its doors within the coming months due to an acute liquidity shortage.
SVOBE operates two schools in St. Maarten: Sundial School and Milton Peters College (MPC) with 1,093 students in total.
Smith said SVOBE has contested the new subsidy system for schools ever since it was implemented, stating that it is not receiving sufficient finances to cover the personnel and operational cost of its schools. The new system, which is called the lump sum system, was implemented in 2010 when St. Maarten obtained country status.
Prior to 2010 schools were subsidised based on the “Vergoeding en Verantwooordingsstelsel,” known as the V and V system. Via the V and V system, schools were subsidised based on each item in their budgets, and each budget item had to be accounted for at the end of the year.
The lump sum system, on the other hand, offers school boards more flexibility as it pertains to the subsidies they are granted, Smith explained. The lump sum system also offers school boards less bureaucracy. He said the rationale behind the lump sum system is to reduce the amount of bureaucracy that was involved in financing secondary education with the V and V system, prior to 10/10/10.
As a result of the reduced bureaucracy and the flexibility that school boards, in this case SVOBE, have acquired with regard to the funds placed at their disposal, it is imperative that SVOBE provide proper accountability for the funds it receives, Smith told reporters.
He said the formula to calculate the lump sum subsidy is based on the number of students in the school who are registered as of December of the previous school year.
“For example, for the calendar year 2018 you will see that in the Government’s budget, an amount of NAf. 17,093,101 was allocated to SVOBE. This was based on the number of students registered with SVOBE at that time. Now, in order for the Ministry to assess whether SVOBE has been spending the taxpayers’ guilders in a correct and prudent manner, SVOBE is required to provide the Ministry with a proper audit of its financial statements.”
No audited statements
According to Smith, since October 10, 2010, SVOBE has not been providing the Ministry with a proper audit of its financial statements. In February 2014, SVOBE initiated a court case against government for loss of income due to the implementation of the lump sum system. The judge instructed SVOBE and government to seek an amicable solution.
Based on SVOBE’s claims that the lump sum caused its schools to have a financial shortfall, government advanced a payment of NAf. 2,276,153 for the period 2010 to 2014, pending the receipt of SVOBE’s audited financial statements.
“However, when the parties could not reach a further amicable solution, the judge rendered an interim decision in April 2014. The verdict stated that government should pay an additional NAf. 150,000 per month to SVOBE until a decision is taken by government,” Smith said.
A Complaint Committee consisting of members of the Department of Education and SVOBE was installed to discuss and resolve the points of contention. As a result of the Complaint Committee, the Ministry amended the lump sum system extensively in 2015 on the basis of an analysis of the lump sum system by SOAB. The complaints that had been made by SVOBE in the past were also taken into account during that exercise.
“In other words, the government made certain adjustments in favour of SVOBE and took a decision as the judge had instructed. Yet, SVOBE also contested this decision. Meanwhile, government made monthly payments of NAf. 150,000 to SVOBE. In total 46 payments of NAf. 150,000, which came up to a grand total of NAf. 6,900,000,” Smith said.
Together with the NAf. 2,276,153, government had paid a total of NAf. 9,176,153 without having received the requested audited financial statements.
According to the Ministry, with the payment of the amount of NAf. 9,176,153, government had over-compensated SVOBE. Given the precarious financial situation in which government found itself in after Hurricanes Irma and Maria in September 2017, the Ministry informed SVOBE in November 2017 that the NAf. 150,000 would be discontinued as its cost over the school years 2011-2014 had been adequately compensated. The payment was stopped in January 2018.
Smith said that without a proper audit it is not be possible for the Ministry to objectively assess whether SVOBE is indeed experiencing a significant financial deficit as it has been claiming for these past years. The Ministry is of the opinion that as a result of the amendments made to the lump sum system in 2015, SVOBE is in fact enjoying a financial surplus. Hence, the urgent need for an audit, which SVOBE has failed to facilitate since 2010.
“Since 2015 the Ministry has informed SVOBE that a final settlement could only be established in line with the Minister’s decision of March 2015, based on audited financial reports. The Ministry also agreed to pay for a certified accounting firm to conduct the audit.
“The accounting firm attempted to audit the financial statement over 2010 to 2014. In March 2018, the accounting firm submitted its report indicating that there was insufficient audit evidence and that no supporting documents could be provided for the subsidy received from government over those years. SVOBE has requested that the payment of the additional monthly amount of NAf. 150,000 be reinstated,” Smith said.
Willing to review
He said government is willing to review SVOBE’s claims of a monthly financial shortfall due to the discontinuation of the NAf. 150,000. However, to date, government has yet to receive SVOBE’s audited financial statements for the years 2015-2017 to be able to substantiate SVOBE’s claim that the subsidy it has been receiving has not been sufficient to cover its cost.
“From the perspective of the Ministry, the recent discussions with SVOBE regarding the lump sum were progressing in a constructive manner. It therefore came as quite a surprise to be informed by the court that SVOBE had filed administrative injunction proceedings against the Minister of Education.
“Even though SVOBE has not objectively substantiated its claim that it continues to suffer a structural deficit, the Ministry was prepared to provide SVOBE an amount of NAf. 50,000 monthly in addition to the significant amounts SVOBE already receives from the Ministry. SVOBE received this offer in writing from the Ministry,” Smith said.
He said that, for reasons unknown to the Ministry, SVOBE has failed to respond to the offer of NAf. 50,000 additionally per month.
“SVOBE has instead without any previous announcement or warning, filed via court petition dated April 12, 2019, administrative injunction proceedings. The hearing in these proceedings took place on Wednesday, April 17, 2019 before the court. SVOBE claimed before the court that it currently suffers a liquidity deficit to such an extent that a real chance exists that its bankruptcy would be sought.
“In addition to its failure to present an audit report, SVOBE has not provided bank statements, nor a cash flow statement to the Ministry or the to court to support its allegation that it is underfunded and that it would not be able to meet its financial obligations within the coming months to such an extent that it would have to cease operating.
“These aspects were emphasised on behalf of the Ministry during the court hearing last week Wednesday,” Smith said.
The court subsequently, on the Ministry’s request, decided to suspend the hearing in the administrative injunction proceedings so that SVOBE can present the proper documentation as requested by the Ministry in the form of bank statements and a cash flow statement for the Ministry to be able to properly assess whether SVOBE finds itself in such a precarious financial situation that it would have to cease its operations within the coming months.
“Only after it has been determined on the basis of proper documentation that SVOBE is currently in an acute liquidity crisis will a decision be made by the Ministry (or the court) if additional monthly liquidity support to SVOBE is necessary,” Smith made clear.