New Auditor General Heather Jacobs Matthews says she is unable to give Government's finances a clean bill of health after pointing to serious flaws in the handling of capital projects.

For the second year in a row, Government's Consolidated Fund received a qualified audit — meaning the auditor is not satisfied that Government's financial statements fairly reflect its financial position.

Mrs. Jacob Matthews said her report for 2008/09 indicated "serious internal control deficiencies in the management of various capital projects".

Capital projects were given a book value of $90 million in March this year — but ended up being given authorised funding of $152 million, an increase of nearly 70 percent, she said.

"These deficiencies led me to question the appropriateness of certain transactions and the underlying value of the assets at March 31, 2009," she wrote in her report tabled in the House of Assembly yesterday. As a consequence, I was unable to determine whether adjustments might be necessary to tangible capital assets, assets under construction, capital development expenses, deficit and accumulated deficit and if additional note disclosure was necessary."

The auditor pointed to Government's absence of consolidated summary financial statements which are supposed to show changes in net debt and cash flow.

She concluded: "As such, in my opinion the accounting policies used to prepare these financial statements are inappropriate to present fairly the financial position of the Government of Bermuda and the results of its operations, its change in net debt and its cash flows."

Also yesterday, Finance Minister Paula Cox revealed Bermuda's net public debt had increased by $204.9 million during 2008/09 to $483.3 million — a rise of 73 percent in just 12 months.

The Royal Gazette reported last week how Government suffered a shortfall of $100 million in its finances in that fiscal year, after underestimating how much it would spend and overestimating how much it would raise.

Total expenditure for 2008/09 was $1.194 billion — $77 million more than had been budgeted for; while revenues were $953 million, $32 million less than estimated due to lower profits in Customs duty, passenger taxes and stamp duty.

Capital projects from the year included the new cruise pier in Dockyard and Port Royal Golf Course, both of which soar their costs soar.

When former Auditor General Larry Dennis gave Government's Consolidated Fund a qualified audit for 2007/08, Premier Ewart Brown called for him to resign, claiming he had politicised the job.

Yesterday, Ms Cox said in a Ministerial Statement: "It has to be said, quite simply, that when the an Auditor General speaks, Government listen and take heed.

"This Government is no different and we consistently look to how we can enhance and strengthen our controls and governance institutions.

"Accordingly, when the Government sees room for improvement, modifications and adjustments will be made so that the value proposition for the public purse is maintained for the Government."

Reflecting on the qualified audit verdict, the Deputy Premier said: "This qualification relates to the Auditor General's opinion that there were deficiencies in internal controls in the management of certain capital development projects."

She said she would not give detailed comments yet, but will later respond formally in writing after a special report is tabled by Mrs. Jacobs Matthews.

Ms Cox also stressed once more that the global recession has impacted on Bermuda.

"The bewildering collapse of some landmark corporate institutions happened almost in a twinkling of an eye," she said.

She named Lehman, Bear Stearns, Merrill Lynch, Washington Mutual, Wachovia and AIG as casualties.

"Government is sensitive to these challenges and is committed to strengthening the way in which it manages and controls Bermuda's public finances," she said.