For the first time the Auditor General has written at length about fraud and misappropriation in his annual report on the Government of Bermuda, voicing his worry at the potential ?growing culture of opportunism or dishonesty by some within the public service?.

Whistleblower protection legislation is needed, he urged, to protect public servants who may not otherwise come forward about suspected fraud or misappropriations for fear of ending their own careers.

Other preventive and detective measures should also be put in place, including updating Bermuda?s Criminal Code as highlighted by the Police investigation into the Bermuda Housing Corporation scandal.

But in a stern call to those at the top, Auditor Larry Dennis added: ?Above all, the culture of any organisation is influenced strongly by the behaviour of its CEO.

?Leaders of Government entities must, at all times, demonstrate honest and ethical conduct, and a strong intolerance for malpractice and other dysfunctional behaviour.?

There are growing indications that dishonesty is becoming a problem, Mr. Dennis said. ?The number of apparent or alleged frauds and misappropriations that have come to light in recent years concerns me greatly.

?Lax internal controls, of which there are many throughout Government, create opportunities for misappropriation and fraud. Tightening these controls should be a first priority.

?But statistics from many jurisdictions show that as many as half of all detected frauds are discovered as a result of co-workers? complaints or tip-offs by outside parties.

?The challenge, therefore, is to create an environment in which awareness of fraud and other wrong-doings become everyone?s responsibility and employees can report their suspicions without fear of reprisal or victimisation.

Mr. Dennis concluded: ?I believe a first step in this direction would be to enact a ?whistleblower? protection legislation.?

Many of the apparent or alleged frauds or misappropriations that have taken place in recent years are already public knowledge, Mr. Dennis said, citing examples such as the BHC scandal.

Touching on the $700,000 ?ostensibly paid for the acquisition of a performance bond? for the new secondary senior school construction project, Mr. Dennis noted that questions have been raised ?that have still not been resolved to my satisfaction?.

But there may be still more, he said. ?For so many to be detected in such a short period of time is more than occasional. It is excessive.

?And because it is generally agreed that most misappropriations and frauds are never detected, there may well be others.?

Emphasising that he knew the majority of the Island?s public servants were ?honest and responsible people?, the Auditor said that ineffective controls could leave even honest employees tempted.

?For these reasons, robust and effective internal controls are essential to protect Government assets,? Mr. Dennis explained.

Yet internal control deficiencies that the Auditor has commented on in the past are not being eliminated, so an environment allowing opportunities for misappropriation and fraud is being perpetuated ? and not all frauds will simply turn up in an audit.

?I am sure that a full evaluation of all Government?s internal controls and systems would, if feasible, reveal many more weaknesses than those addressed by my outstanding audit recommendations.

?It is instructive that two of my recent management control systems audits, which do involve evaluating management systems and controls, revealed alleged fraud and questionable payments.?

In the meantime, Mr. Dennis noted, public servants will not report frauds or misappropriations unless they know they will be protected. ?History is replete with stories of people who ?blew the whistle? and effectively ended their own careers.?

Legislation must be updated, he said, adding: ?The Police investigation of the BHC revealed, among other things, that Bermuda?s Criminal Code needs revising. The Acting Director of Public Prosecutions stated that if the Code had been modernised, more criminal cases would have made it to court.

?In this regard, the Premier stated in August, 2004 that ?This Government is prepared to place questionable activities under the heaviest scrutiny and is prepared to live with the outcome?.

?I welcome these sentiments and suggest that, in addition to revising the Criminal Code, consideration be given to enacting whistleblower legislation.?

The Ombudsman Act 2004 does provide for whistleblowers through the Human Rights Act, the Ministry of Finance noted in response.

An independent Whistleblowers Act was discussed during the development of the Ombudsman Act, but Government has not yet decided whether or not to proceed. Such legislation will not solve the growing problem of fraud ? but it will be a good starting point, Mr. Dennis said.

Legislation requiring all Government entities to periodically review and evaluate the adequacy of and compliance with their own internal controls ? reporting the results to the Ministry of Finance ? could also help.

Mr. Dennis was also disappointed the ?dismissive tone? taken regarding his 2003 recommendations regarding the procedures for dealing with fraud. In 2003 he called for officials such as the Minister responsible, the Permanent Secretary, Accountant General, Attorney General, and Auditor General to be notified when fraud is discovered or strongly suspected ? but Government responded that current requirements are sufficient.

Currently the entity involved notifies the Accountant General of fraud. The Accountant General then decides if an investigation is warranted and, if so, who should be notified of the investigation?s findings.

?With all due respect to the Accountant General, I cannot accept that ... is sufficient,? Mr. Dennis wrote. ?I am confident that Ministers would like to be informed immediately if fraud is alleged or suspected.?