dollars a year and requires major surgery, a new report has revealed.

And independent Government Auditor Larry Dennis in his latest audit paper demanded action to halt the cash haemorrhage from hospital accounts.

The Auditor's report, covering the financial years 1995-96 and 1996-97, lists a litany of errors on the Hospitals Board's financial front.

These include: $145,000 lost because of "inadequate collection procedures'' on health insurance plan premiums from retired employees; $96,000 in Customs penalties due to delays in returning documents for Customs clearance; and Banking errors which meant an interest overpayment of $77,000, as well as $8,000 in lost interest because cash was put in a non-interest paying account.

Mr. Dennis was yesterday off the Island and not available for comment and his office said questions would have to wait until he returns next week.

But his report sticks the knife into the hospitals' accounting procedures.

He said: "I am bringing these to the attention of the House of Assembly because collectively they illustrate a significant need for improvements in the Board's legislative and financial controls.'' He added: "The 1997 audit of the Bermuda Hospitals Board's financial statements revealed a number of accounting and financial control deficiencies, some of which resulted in losses or unnecessary expenses.'' And the report recommended: "To ensure compliance with legislative requirements and to improve financial management, the Bermuda Hospitals Board should strengthen or establish procedures to control and protect the assets and resources under its stewardship and to enable reliable financial reporting.'' Other examples of waste singled out by Mr. Dennis include an $18,000 standing deposit with Customs which was not recorded in the financial records and a $13,500 credit with a hospital supplier not used because nobody told the accounts payable department.

Mr. Dennis' report added: "Control over expenditure needs improving.

Documentation could not be located to support a number of the payments selected for audit examination.

"A small sample of payments examined revealed two instances where overpayments totalling almost $15,000 occurred.

And he added: "Control over billings and billing rates needs improving.

Instances were noted where the wrong billing rates were used or where new billing rates were used before they were approved by the Board or the appropriate committee of the Board.'' Yesterday, Hospitals Board spokeswoman Kendaree Burgess-Fairn admitted the hospitals' finances had been close to terminal -- but insisted steps had been taken to put its books on the road to recovery.

Ms Burgess-Fairn said: "It was bad, no doubt, but we're obviously aware of the Auditor's report for 1996-97. There are several recommendations made and the majority of them have been implemented and completed.'' She added: "In the last five years, the management team of the Hospitals Board have put lots of processes under the microscope and some of them were found to be inadequate.'' And she said: "There has been a restructuring of the finance department.'' Ms Burgess-Fairn declined to comment on why the hospitals financial affairs had been allowed to slip.

She said: "It would be inappropriate for me to answer that question -- I guess it goes to the processes and systems in place several years ago.''