New Auditor General Heather Jacobs Matthews decision to qualify her audit of Government's Consolidated Fund because she was unable to say if the management of major capital projects had been carried out properly is a blow to Bermuda in two ways.

The first is that a qualified audit can have a serious effect on the ability of a government to borrow money and can also affect the terms on which it can borrow. Lenders giving credit to any institution which cannot say its books are 100 percent accurate will inevitably see the loan as a riskier proposition than it would be to an institution with a clean audit, and lenders will therefore increase the interest rate, and possibly limit the amount it is prepared to lend.

This is serious because Bermuda now is more in debt than it has ever been in its history, and will almost certainly have to borrow more in the next fiscal year as its revenues have deteriorated without an equivalent fall in spending. And there are a number of public projects such as the hospital which will require, at the very least, a guarantee from Government.

The fact that this is the second year in a row in which the Auditor General has issued a qualified audit will make lenders even more dubious, and will offset the comfort they may get from the fact that Bermuda still has a high credit rating and that its existing debt is low compared to other countries. Nor can it be claimed with much conviction that this qualified opinion is the result of one person's political bias, as was effectively claimed last year when then-Auditor General Larry Dennis qualified his audit.

The second problem goes directly to the Mrs. Jacobs Matthews' concern; that projects with a book value of $90 million ended up costing $152 million, an increase of 72 percent. It is not unusual for major projects to end up costing more than expected. Plans and conditions change. But the fact that Mrs. Jacobs Matthews is unable to determine what caused the 72 percent overrun is worrying and indicated "serious internal control deficiencies in the management of various capital projects".

That is worrying, and no doubt Mrs. Jacobs Matthews' special report will reveal much more when it is released. It is to be hoped that that will be soon. This newspaper has already reported in detail on the cost overruns at the new cruise ship pier in Dockyard. But it seems clear that, depending on the seriousness of the Auditor's report, the whole question of how capital projects are administered needs to be examined in detail by an independent inquiry.

Quite simply, Bermuda cannot afford to see costs overrun to the extent they have in recent projects. The whole process needs to be re-examined to ensure that taxpayers are getting their money's worth.

This needs to be done as a matter of urgency. Given that Bermuda's need for credit will almost certainly increase in the near future and given that projects like the hospital have to be carried out efficiently and transparently, the need to reassure the public and lenders has never been greater.