The proof is in the pudding when it comes down to the dollars and cents behind Bermuda’s multi-billion dollar deficit.

While total Government expenditures “have reduced little over the last five years, the amount of overspending in relation to limits set by the Legislators has”.

In her latest report, Bermuda’s Auditor General, Heather Thomas said: “In the last four years, total spending was lower than the adjusted estimates and, in the last two years, the amount of supplementary estimates required has fallen to a more reasonable level (an average of approximately 1.65% of total estimated spending).”

But she said “there were still a few cases of individual ministries overspending”.

And that overspending points right back to the two primary concerns on expenditure controls highlighted in the Auditor General’s previous report:

  • persistent and significant overspending indicating a lack of internal controls over such spending, and
  • lack of supplementary estimates when spending exceeds the total amount authorized by the legislature or lack of ministerial approval of budget transfers between departments.

“Controlling expenditures so that they do not exceed planned or approved limits is an important step to reducing the annual and accumulated deficit,” said Ms Thomas.

On the “lack of timely supplementary estimates or departmental transfer approvals for excess spending”, she said three ministries spent over the adjusted estimates in the year ended March 31, 2013:

  • Health $6.9 million,
  • Transport $3 million, and
  • Public Works $0.4 million.

In 2014, the Ministry of Public Works was overspent by $1 million with another $2.6 million overspent the following year.

“There were no overspent ministries for the year ended March 31, 2016,” Ms Thomas said.

Following the supplementary estimates presented to the House of Assembly in March 2017, the Auditor General recommended that supplementary estimates “should be presented to the House of Assembly for its approval as soon as possible after that year has finished”.

She also pointed up budget overspends at the departmental level:

  • 18 Government departments overspent a total of $19.8 million
  • 8 departments overspent a total of $ 5.0 million in 2013/14
  • 7 departments overspent a total of $10.6 million in 2014/15
  • 10 departments overspent a total of $ 3.3 million in 2015/16

The recommendation to the Ministry of Finance “in order for the Government to be in compliance with legislated expenditure controls” was that the Ministry “ensure that procedures in place are followed to prevent ministries from spending money in excess of appropriated estimate limits”.

“These procedures should include ensuring that budget transfers between departments within the same ministry are approved by the Minister of Finance in advance of any overspending occurring,” she said.

Other concerns cited included the “lack of a signed agreement with the Corporation of Hamilton”.

As of December 31, 2016, Ms Thomas said: “The Government has a contingent liability of $6.3 million related to the rental of the Corporation fire service property.

“As a lease agreement has not yet been finalized, and no amount has been paid by the Government in relation to this rent, no amount has been recorded as a liability for the use of the property in the Consolidated Fund’s financial statements.

“On the other hand, the Government has recharged to the Corporation the costs incurred to respond to fire calls within the city of Hamilton.”

On that note she said: “Approximately $600,000 a year is charged by the Government to the Corporation. 

“As at March 31, 2016, $6.3 million is due to the Government. This amount is provided for in the financial statements as no payment is made by the Corporation.

“Thus, there is no impact on the revenues or on the assets of the Government. There has been no signed lease agreement for the rental of the property between the parties since November 2008, when the former lease expired.

“The Government and the Corporation have refused to pay any recharges prior to having a final agreement and therefore no assets or liabilities are recognized in the Consolidated Fund financial statements,” said Ms Thomas.

“Without a written signed lease agreement, which specifies the respective rights, duties and obligations of both parties, there is no legally binding contract. It is unfortunate that a new lease agreement has not been signed for over eight years.”

The Auditor General’s Office has been recommending “that action be taken to complete a signed agreement with the Corporation as soon as possible” since 2013.

Another area of concern – the “incomplete accounting for Heritage Wharf”.

Ms Thomas noted that in May 2009, the Government conveyed the freehold interest in Heritage Wharf  in Dockyard to the West End Development Corporation “for the nominal sum of $1 on completion of a $58 million capital development project”.

“The transfer was recorded by the Government as a $58 million capital grant expense and by Wedco as a $58 million infrastructure asset for those costs incurred as of May 2009.

“In 2011, it was the Ministry of Finance’s intent that the Wharf be reconveyed to Government in order to not weaken materially the financial position of the Consolidated Fund as a result of the $58 million being removed from the statement of financial position.

“For various reasons, this re-conveyance did not occur and the Wharf remained on Wedco’s books for $58 million with an agreement that it would ultimately be transferred back to Government.”

Since 2012, she said: “The Government has spent another $30 million to make repairs and that amount is currently being carried in the Consolidated Fund’s accounts as assets under construction.

“It was recommended that the Ministry of Public Works in conjunction with the Ministry of Finance should exercise its intent and address the re-conveyance of the Wharf so that all relevant costs of ownership and repairs ($88 million to date) are accurately recorded in the appropriate entity’s books.”

Additionally, “it was recommended that the Attorney General’s Chambers be instructed to draft the re-conveyance as intended”.

It was also noted that the Wharf was re-conveyed to Government from Wedco in March 2017.

The report also pointed up concerns regarding “inadequate procedures over bank reconciliations”.

Ms Thomas stated that “significant issues related to the bank reconciliation process” have been reported “for a number of years”.

However, these issues continue to be unresolved,” said Ms Thomas.

Deficiencies for the year ended March 31, 2016, included:

  • numerous and significant unrecorded additions and deductions to GL balance;
  • long outstanding unresolved book and bank reconciling items;
  • improper treatment of reconciling items;
  • unrecorded realized foreign exchange gains and losses on closed bank accounts denominated in foreign currencies;
  • unadjusted suspense accounts at year-end;
  • incorrect translation rates applied to bank accounts denominated in foreign currencies at year-end, and
  • substantial delays in clearing of bank deposits.

“Given the risks inherent in the reconciliation process, it is imperative that the Accountant General exercise a greater degree of control over the reconciliation function,.”

Ms Thomas added: “It was recommended that the ACG perform procedures required under Financial Instructions and develop a robust control environment.”