Urgent action needs to be taken in the light of a “magnitude” of frauds within a Government department, a watchdog’s report has strongly recommended.

A risk assessment and analysis of the Accountant General’s Department needs to be set up immediately, according to the document from the Public Accounts Committee (PAC).

The PAC report also expresses concern over the embezzlement of funds within the Immigration Department.

It points to $3.6 million — including about $400,000 in cash — which was misappropriated in a major theft discovered in April last year. However, of the stolen monies, about $2.2 million in cheques has now been recovered, the report states, while the Ministry is working on an accounting and recovery of the remaining $1 million in cheques.

New measures to tackle theft within the department should prove effective, it adds.

The warning over the Accountant General’s Department comes after major fraud cases in which “long-time trusted employees” stole cash from the Government. One former Accountant General’s Department employee, high-flying accountant Harrison Isaac Jr., stole $2 million in the biggest ever fraud against the Bermuda Government about three years ago. He is now serving prison time in the United States where his crime technically took place.

People have got away with fraud partly because managers did not properly use their power to oversee their actions, the report claims. It states: “The Accountant General apprised your committee concerning the two major fraud cases recently experienced in the department and addressed whether there was a systemic problem.”

The report states the department has “good controls systems” in place to block fraud.

However, it warns that “persons have been able to circumvent or abuse controls because managers/supervisors have not always properly exercised their oversight role or system faults have been exploited.

It concludes: “In light of the magnitude and frequency of frauds perpetrated within the Accountant General’s Department, your committee strongly recommends that a risk assessment and analysis be completed as a matter of urgency.”

Finance Minister Paula Cox said the Government’s re-established Internal Audit section now investigates “any fraudulent activity and thefts of Government property” as well as preparing reports on findings and recommendations to prevent reoccurrence.

Ms Cox said a number of measures had been put in place to give the Accountant General “the tools to do a proper job”.

These include the hiring of more financial controllers in all Ministries and more resources within the department to improve accounting systems.

“Of significant importance,” she said, “the Accountant General is near to concluding the implementation of a Government accounting infrastructure that involves placing qualified accountants throughout Government at the departmental or Ministry level, to ensure financial controls are improved and accounting needs are met.”

Turning to the Department of Immigration, the report states: “Your committee expressed concern about the recent incidents of monies being embezzled by persons working in the Immigrations Department.

“The Permanent Secretary said that the discovery of a major theft of funds in the Immigration Department in early April, 2005, has revealed serious weaknesses in the department’s accounting controls, and he assured the committee that compliance measures are now in place.”

The report says the department is working closely with customers and client firms to recoup the rest of the cash. It backs the department’s bid to address weaknesses in its accounting controls by introducing a new accounting systems package.

The PAC report also points to “illegal expenditure” within the Accountant General’s Department, suggesting that cash is spent without first being approved by the House of Assembly in the annual budget, and recommends that the department complies with existing legislation.

Ms Cox argued the term “illegal” is a misnomer and would be more accurately referred to as unauthorised expenditure.

The document, into the financial years ending March 31, 2003 and 2004, was presented to the Speaker of the House on Wednesday and was made public on Friday. It includes a raft of recommendations to improve highlighted failings in a host of public accounts.

The document also draws attention to “inappropriate requests” made to a senior civil servant by a Minister.

This came to light after civil servants were asked whether they had been requested to perform any actions which made them uncomfortable or compromised their ability to do their job. The matter was resolved after the civil servant informed the relevant Minister what had happened. “Your committee agrees that Ministerial interference with civil servants carrying out their responsibilities is inappropriate,” the document states, “and must be discouraged by specific directive from the Cabinet Secretary or the appropriate principal.”

Administration and accounting systems within the Social Insurance Department also need to be improved, according to the PAC. It recommends that the Social Insurance Director be instructed to address a growing number of “delinquencies” which have reached an “unacceptable level”.

Some operations in the department are still conducted manually, it states, when they could be more effectively done through IT. As a result, the department’s accounts — including those of the Government Employees Health Insurance and the Hospital Insurance Fund — are well behind schedule.

Arrears of the pension contributions rose from $9.2 million in 2003 to $14.9 million the following year, it notes. It states that better access to the system to review individual contributions records, a measure agreed by the Social Insurance Director, could help reduce the arrears.