13 February, 2007

Social Security: Guest Editorial 4

Social Security Overhead Scandal.

The funds paid by workers and employers into Social Security are held in trust, primarily for the hard working wage earners of Anguilla. A large element of transparency is called for.

Has anyone noticed the mysterious annual financial reports posted on the Social Security website that have had all the pages with numbers on them removed?

How does it serve the people for Social Security not to reveal what the missing pages contain?

In the "Anguillian" of 19 January we saw some self-serving data issued by Social Security. Most of it was hype, but we see, possibly for the first time this has ever been revealed to the public, a breakdown of how their overhead compares with the benefits paid to the people.

According to the graph, the benefit expenditure for 2006 was about EC$5.2 million and the total expenditure about 9.2 million. Five from nine leaves four. Over 43% of the Scheme's expenditure goes to overhead! I am astounded to learn that it costs us $4 million a year to keep the books and administer this trust fund.

In the U.S., their system operates on an overhead of less than 1%.

Just as a comparison, let us look at the last available national budget, ie, for 2005. In that year, it took:

$1.6 million to run the AG's chambers

$5.5 million to run the entire police "service", with 88 staff

$1.4 million for Immigration - 35 staff

$.3 million to administer some 1500? work permits by the Labour Dept.

$2.4 million for Customs - 58 staff

$1 million for HM Prison - 23 staff

Easy dog bite hard!

I attach a suggested illustration for this topic: A slave deck.


  1. Why is it that after spending a reported $3.5 million on the Social Security building, tenants must use stones or cement blocks as door stops for their exterior doors? People haven't used stones for such purposes since they lived in caves. Visitors to Anguilla must wonder about the primitive nature of our technology. It's embarrassing.

    The late Walter Hodge, Tim's father, was revolutionary Anguilla's first "Minister of Finance." He was a good and humble man. About a year ago Tim was asked on anguillatalk.com, "If Walter Hodge was alive today, and if he were Director of Social Security, would he have reserved the best space in the parking lot for himself?" Although Tim seems to have unlimited time for self-congratulatory commemorations, speeches, rites and celebrations, we are still awaiting Tim's response to this simple question.

    The Social Security Board’s website is being completely re-vamped and should shortly display all the recent available reports. Any issue with pages in the report is a mystery to me too, but there is no attempt to hide or change anything. The Annual Reports are public documents available at the Social Security Office and the Public Library, and have been laid in the House of Assembly as required by law. Unfortunately, we are not up to date with the publishing of reports because of the late completion of the Audit on the 2005 Accounts, we will however post the audited accounts as soon as they are available and the un-audited 2006 accounts on the web-site.
    Regarding transparency, the Social Security Board is a leader in the quest for good corporate governance in Anguilla. As a fiduciary holding the funds of the public in trust, it believes in, practices and promotes these principles. And it has an outstanding record in this regard among its peers. This year, and going forward, although not required to do so by legislation, it will hold a public “AGM” when the directors will report on their stewardship, the state of the Fund, and answer questions form the public. Just for the record, the accounts are audited by the international firm KPMG and certified by the Chief Auditor out of the National Audit Office in the UK.
    It is amusing to see how the guest editorial portrays the information in The Anguillian relating to the Social Security System’s first 25 years. It is said to be “self-serving data”, and “most of it is hype”. It is either data, or it isn’t. Facts can’t be hype. What is presented is the actual performance. The use of these terms in describing the information reduces the credibility of any assessment.
    Now to the attempt to define and compare our “overheads”. The article looks at a chart of benefit expenditure for 2006, subtracting $5.2 million in benefit expenditure from $9.2 million in total expenditure to leave $4 million to ”keep the books and administer this trust fund.” It then performs some vodoo accounting to determine the System’s overheads from that chart, stating that “over 43% of our contributions goes to overhead.” Firstly, that chart doesn’t even mention contributions, or income. The System’s 2006 contribution income, for the record, was $20.3 million, and total income was $27 million. $4 million represents 14.8% of that total. Secondly, what is spent to ”keep the books and administer this trust fund” is not “overheads”. Overheads are defined as the indirect costs incurred in running a business. These include rent and rates, marketing and publicity, administrative and financial costs. Therefore overheads are an element of the $4 million expressed here, not the total. Thirdly, the total expenditure in the graph includes $0.5 million in Social Security Development Fund expenditure, which is separate from and unrelated to the Board’s administrative expenditure.
    The article then makes the unfounded and unsupported statement that the US system operates on an overhead of less than 1%. 1% of what, to perform what services? There are significant and substantial differences between the US System and ours, differences of scale, differences of scope, differences period! Ours comes out looking a lot better in almost any area of comparison, and that is not hype. Not least, ours has been consistently determined to be sustainable and strong, theirs isn’t. The US System is like a department of government, they don’t have to collect their monies, that’s done for them by the IRS, and they don’t have to manage their monies, they just pour it into the great big black hole that is the US Treasury and it becomes another accounting entry. When I discuss the difference between our system and the government departments in Anguilla below, many of the areas referred to there will also be relevant to this comparison.
    The article compares the $4 million figure (a summary figure gleaned from part of one line on a chart which should actually be $3.5 million) in 2006 actual expenditure for the social security system with budget estimates for 2005 for several government departments. Once again, the analysis is seriously flawed. Just for the record, while the article presents a $5.5 million 2005 estimate for the Police Service, actual expenditure in 2006 was $6.9 million. The AG’s Chambers was $2.0 million, not the $1.6 million as presented for a comparator, Immigration was $1.6 million, Prison was $1.4 million, Customs was $2.8 million. I found these figures out in less than five minutes, I suggest the writer of the article needs to do proper research before writing in the future.
    The comparison with government departments presents yet another issue of comparing “apples with oranges”. The Social Security Board is not a government department. It is a statutory body which, though quasi-governmental, is for accounting and many other purposes an autonomous institution like the Caribbean Commercial Bank, the National Bank of Anguilla or J.W. Proctor’s, and meets all its costs, including its overheads. The government departments mentioned meet little if any of their overheads. They are met from the Treasury, therefore these costs would be shown somewhere else in Government’s Accounts. These include social security contributions, pension contributions, insurance, electricity and water and other such costs. If the government applied GAAP accounting rules each department would have to show its contribution to government expenditure on the administration of their Department (Ministers, Permanent Secretaries etc. - these costs are borne by the Ministries, not Departments), the costs of running their computer (IT) systems (met by the Department DITES), audit, training, and other shared services. Government accounting is much different from GAAP accounting. So the police department does not show depreciation on its building, while Social Security is forced to show depreciation on its building (in 2006 this was approximately $145,000). Social Security has to show ALL its costs, there is no Ministry or Treasury to turn to. Social Security has to pay for its actuarial costs, no government department has to. It has to pay taxes on its property, duties on its imported goods, postage and other costs to government which government doesn’t pay to itself.
    I think, my Lord, its time I rest my case. But I think that the writer owes us a great big apology.
    Timothy Hodge

  3. The gist of the guest editor’s criticism, which Tim does not attempt to answer, is how could the Board justify spending such a large percentage of its expenditure on non-benefit related matters?

    He agrees the Board spent $9.2 million in the year 2006. He agrees that, of this figure, only $5.2 million was spent on benefits. He agrees that $4 million was spent on non-benefit related matters.

    He does not attempt to justify what, to an old voodoo man like the guest editor, must have seemed to be an outrageous imbalance.


  4. Bermudians who work in the UK and retire back home get an annual cost of living adjustment on their pensions.

    Anguillians who work in the UK and retire back home get the same amount until they die, perhaps of starvation.

    I'm wondering if our Director of Social Security, who is extremely diligent about holding self-serving celebrations and ceremonies, has been too busy to negotiate equal rights with Bermudians, Gibraltarians and Cypriots.

    If he doesn't think this is his responsibility, whose does he believe it is? Names, please.

  5. I am the voodoo guest editor. I decline to identify myself because we all know that those who question authority in Anguilla are often victimized. I not only have a career, I have a family and an obligation to protect them from harm by overstuffed Babylonians. I am grateful to Justice Mitchell for providing Anguillians with a place for thoughtful discourse.

    Tim is correct; expenses are 43% of total expenditure, not total contributions. And $500,000 of that goes to the Development Fund, so running this bloated agency only costs $3.5 million a year. Hubert said it well a few months ago when he ended one of his rants on the radio by pausing and saying, "But I'm supposed to be an idiot."

    Transparency is a jokey slogan at Social Security. The Board meets in secret and its Minutes are secret and when some enraged employee of Tim's got copies of them a few years ago and Cuthwin Webster read parts of them on TV, there was a big internal investigation, which one staff member called "a witch hunt," and when that failed the Board got Tommy Astaphan to write Tim's Cousin Cuthwin a whiney letter asking for the return of the documents.

    It was around the same time that ExCo asked the Director to provide a list showing all salaries, allowances, bonuses, etc. paid to all members of staff, and the Board responded huffily with accusations that ExCo was seeking to micromanage the Scheme.

    People have been asking about the financial reports with no financial pages for two years on another forum, and have been ignored. Now Mr. Mitchell asks the same question and oh my goodness, it's a mystery how this could have happened and we're subjected to the recitation of slogans about transparency and models of good governance. To quote Justice Mitchell, "These are not the Middle Ages, for God's sake! And we are not peasants or serfs to gratefully accept whatever bones of improvement are cast our way!" Tell us about the parking space. Ah vex!

  6. Mr Mitchell, it is such a relief to have you back on Anguilla. Common sense with intelligence, what a combination!!
    Your comparing figures are just the right approach. It sure put things in perspective. Now where do you suggest I go with my anger over this issue?
    x Gabriele

  7. Why is social Security overheads so high. Not even Fidelity overheads are so high and they handle billion of dollars.

    I have mentioned on many forums that Social Security needs to be automoated and stop wasting money on frills and flowery crap.

    I want to see a detail portfilio of how this money is invested.

  8. Mr, Mitchell,
    in reference to my previous comment:
    I apologize, I thought you wrote the Social Security article. You sure do have good Guest Editors!


  9. I have corrected the error and changed "contributions" to "expenditure" in the main post.



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