The Island's independent financial watchdog could be muzzled due to a lack of real freedom to carry out its duties, Auditor Larry Dennis warned yesterday.

And he called for the Auditor's Office -- which scrutinises public spending -- to be given a UK-style arms-length independence from Government and the civil service.

Mr. Dennis said: "It makes little difference whether Government actually exercises control. It's whether they can exercise control which is the issue.'' Mr. Dennis said the law setting up the Auditor's Office recognised its independence -- but added that the civil service, Government boards and the Finance Ministry interfered in staffing and his budget.

And he said the special Parliamentary Standing Committee set up to help guarantee a safe distance from Government and oversee manning levels had been hamstrung.

Mr. Dennis' 97/98 report added: "As a result, I am beholden for staffing and compensation levels to those that I audit.

"This is incompatible with the concept of auditor independence. It is also inconsistent with the rules of the House of Assembly.'' Mr. Dennis said yesterday: "Bermuda holds itself up as an advanced economy and we really should be doing much better in this area.

"The independent Audit Office is an integral part of our system. It's about good government and if we're talking about good government, we have to talk about the independence of the Auditor.

"It's important to Bermuda's prestige, it's presentation of financial information in international sphere and it's important to the Country.'' Mr. Dennis said the Standing Committee should also be in charge of budgeting for his office.

But he added: "The Ministry of Finance insists on subjecting my annual budgets to the full budgetary review processes it applies to Government departments.

"Budgets of the Auditor, however, are properly the responsibility of the Standing Committee on the Office of the Auditor.'' Mr. Dennis explained that the Auditor had to be responsible to the House of Assembly -- and the rules allowed for the Standing Committee to perform that job.

The report said: "It makes no sense that the Auditor's budgets alone should be subjected to two in-depth reviews.

"And..auditors should justify their spending to those to whom they are accountable, not to those that they audit.'' The report added: "It is inappropriate for the Public Service Commission to exercise recruitment and disciplinary controls over the staff of the Office of the Auditor.'' But Mr. Dennis said the new Government appeared to be taking a softer approach to creating a hands-off approach than previous administrations.