This is part three of the review of the Report of the Auditor-General on the Audits of the Financial Statements of the Consolidated Fund of the Government of Bermuda for the years ended March 31, 2013, 2014, 2015 and 2016. This article focuses on the AG’s observations on how our finances are handled by the Civil Service, noting issues of concern with recommendations on how to improve on these issues.

The audit of a government, a publicly traded company, and the like generally follows the same game plan.

First, the financial statements are prepared and approved by the Accountant-General for submission to the independent external auditor, the Auditor-General.

Second, the AG undertakes her independent review of the financial statements, corroborating and verifying from unrelated third parties that the government financial data is real and credible. After an exhaustive examination with statistical sampling of all aspects of government’s financial processes and supporting documentation for the required time frame, her independent opinion on the government’s financial conditions and position is rendered. There are four opinion outcomes:

• Unqualified opinion — the clean and the best — that based upon the Auditor-General’s examination, her opinion is that the financial statements present fairly, free of material misstatements, the financial position of the government consolidated fund.

• Qualified opinion — the financial position is not satisfactorily accurate for numerous reasons, such as failure to follow accounting principles and financial instructions, insufficient or non-corroborating verification of financials by independent third parties, and numerous other analyses, etc.

• Disclaimer — no opinion, meaning that the audit could not be conducted at all due to lack of financial records, inability to utilise thorough audit procedures, etc;

• Adverse opinion — this opinion indicates gross financial misstatement, mismanagement, inconclusive data, and, that possibly, fraud, exists. An adverse opinion can seal the fate of entities with disastrous financial records.

Part 3 — pages 29-42: Audit Observations [of issues] and Recommendations.

Since even a clean audit opinion cannot cover every single transaction, the auditor’s mandate is to note issues of concern where errors, misstatements, could seriously impact the overall government financial position. Every single auditor observation is important, but with limited space, we will focus on some top monetary issues.

There are numerous lacks (deficiencies, absences):

• Lack of adequate bank reconciliation procedures, this significant issue has been cited as inadequate as far back as 2007 (and possibly further) by all three Auditors-General

• Lack of spending controls

• Lack of Government’s indebtedness check documentation

• Lack of supplementary estimates and departmental transfer approvals

• Lack of signed agreement with Corporation of Hamilton

• Lack of supporting documents, certification, and correctness for payments

• Lack of Cabinet approval for contracts in excess of $50,000

• Lack of quotations, year end certification and reconciliation between ledgers

• Lack of spending controls and Legislature’s authorised spending limits

• Lack of consistent treatment of delinquent accounts receivable

• Lack of formal documentation of Tax Commissioner’s Office accounts receivable estimates

Additionally,

• Incomplete accounting for Heritage Wharf

• Operating expenditures and accounts payable, revenues and accounts receivable.

• Page 42: very importantly, deficiencies in information technology, especially, those issues addressed in previous audits remain unaddressed.

Page 33: inadequate procedures over bank reconciliations that have not yet been correctly resolved, significant issues, according to the auditors for a number of years.

• Most important, substantial delays in clearing of bank deposits!

• Numerous and significant unrecorded additions and deductions to General Ledger balance.

• Long outstanding unresolved and improper treatment of book and bank reconciling items.

• Unrecorded and incorrect realised foreign exchange gains and losses on closed foreign currency bank accounts.

• Unadjusted suspense accounts at year end (suspense accounts are where you don’t know the category or what the receipt or payment is for, in other words, a mystery).

Readers, bet you and your family know exactly what you have in the bank. Bank reconciliation is a basic bookkeeping routine process. Our government should handle our money just as responsibly.

Page 34: lack of government indebtedness check documentation.

No background checks between ministries carried out before awarding full gross contracts to vendors with unpaid government tax liabilities.

Page 35-37: lack of quotations (should be three quotes for over $5,000 contract), supporting documents, validity, and correctness of invoices from suppliers for payments and/or resolution by House of Assembly or Cabinet approval over $50,000 limit.

• More than $600,000 paid without control invoice documents by various ministries: Works and Engineering, Social Insurance, Public Lands and Buildings

• Duplicate payments of $263,000 by Marine and Ports

• $4 million plus paid to Future Care by Health and Seniors without House of Assembly approval.

• Total payments of $771,000 to a supplier by Public Transportation without Cabinet approval.

• No quotation documentation for a Marine & Ports awarded contract of $940,000 and Public Transportation of $169,000.

Page 40: accounts Receivable. Past due (over 180-365 days) of unpaid revenue receipts amounting to $9 million at Public Works, and more than $2 million at Airport Operations.

Page 41: Tax Commissioner’s Office needs a formal accounts receivable process. The OCT handles more than $528 million, 55 per cent of the Consolidated Fund’s total revenue as at March 2016.

Page 42: information technology control deficiencies, many of which were identified in prior years and not been resolved: weakness in access (passwords), disaster recovery plan, weakness in VPN, security policy not implemented, and more.

Read it all for yourself. Document can be downloaded or read online, attached under Related Media to the online version of this article at www.royalgazette.com

Remember, this is your money!

Part four: later, readers. You’ve had enough of numbers for a while, so we’ll put the last piece on the back burner — until, the half-year report on the current year April 1, 2018 to March 31, 2019, Bermuda Government financial statements.

That will give us some expensive food for thought.

Recap

Part one covered “Bermuda’s audit reports and why they matter”, https://tinyurl.com/yclhk3ek

Part two, published last week, emphasised “Auditor-General demands full picture”, https://tinyurl.com/y9cckpl8

• Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette. All proceeds earned from this column go to The Reading Clinic. Contact: martha.myron@gmail.com