Bermuda’s Auditor General, Heather Thomas has warned that no matter which political party is in power, it’s time for Government to buckle down and come up with a clear cut plan to reduce the island’s debt and multi-billion dollar deficit.
In her latest report, she said “significant and substantial” action is required and should be treated as the Government’s “highest priority”.
She also said other “relevant reports”, including the results of the Spending and Government Efficiency (SAGE) Commission and the Commission of Inquiry, must be considered “carefully”.
To critics who may suggest she is overstepping her bounds by “entering the political arena”, she said: “This is not the case and is certainly not my intention.
“What I am pointing out is that, regardless of the party in power, action – significant and substantial – is required to improve the financial condition of the country.
“The specific plans, policies, goals, programmes and resource allocations are those for the Government of the day to decide and the Legislature and the public to debate.”
Once you crunch the numbers on the Financial Years ended March 31, 2010, 2011 and 2012, the bottom line is – Bermuda’s consolidated fund “continues to deteriorate”, she added.
For taxpayers it all sounds painfully familiar. And when it comes down to reducing Government spending, like her predecessors, Ms Thomas said the same thing – again.
She also expressed concern that “Government business is transacted through other public funds and Government-controlled organizations such as the Bermuda Housing Corporation and the Bermuda Land Development Company Limited”.
“Government’s financial statements do not currently consolidate the results of these organizations with the Consolidated Fund,” said Ms Thomas. “Consolidating these funds and organizations with the Consolidated Fund would mean that each organization’s assets, liabilities and operating results would be incorporated into a set of summary financial statements that show the operating results and the financial position of the whole of Government.”
In other jurisdictions like Canada, she said: “Public Sector Accounting Board establishes standards of disclosure, which should be followed by Governments.
“Those standards have been accepted by the Chartered Professional Accountants of Bermuda (formerly the Institute of Chartered Accountants of Bermuda) and are therefore generally accepted in Bermuda.”
In her initial observations she expressed concern that the Government “is making decisions without knowing the combined financial position of all the organizations that make up the Government”, by “not providing the House of Assembly or the public the analytical information that would help them understand Government’s financial statements and its financial condition”.
With “no effective long-term plans for reducing the annual and accumulated deficits or the associated debt” she noted that “unfunded liabilities of its major pension plans or the size of taxpayer indebtedness”, all continue to grow “unsustainably”.
“Consequently, the resources available to carry out Government programmes effectively are predictably being impacted by increasing debt servicing costs.”
With that in mind, she said it was more prudent for Government “to be clear about how its goals and priorities will be affected by fewer resources” and simultaneously “ensure that the reduced resources are aligned in a way that maximizes their effectiveness and has the least impact on the quality of its service delivery”.But each and every year of “inaction exacerbates the problems”, And those problems, she said are “serious”.
“In essence, if Government can control an organization, whether actual or implied, the organization’s results should be included in the Government reporting entity,” said Ms Masters.
Until summary statements are presented, she said Government runs the risk of “reading and relying” on financial statements and “mistakenly view them as the consolidated financial statements of the whole of Government”.
“More importantly, the public is not provided with full disclosure regarding the accumulated deficit or surplus of its Government.”
These latest statements on the financial transactions of the Consolidated Fund “were “prepared primarily to provide accountability for the financial resources appropriated by the Legislature of Bermuda”.But they are “not summary financial statements of the Government of Bermuda”.
With “significant financial activities” that “occur outside the Consolidated Fund” she noted that “the financial statements of the Consolidated Fund do not represent the full nature and extent of the overall financial affairs and resources of the Government of Bermuda”.
And in the absence of statements “for the whole of the Government of Bermuda”, the Auditor General said she was “of the opinion” that the statements “are intended and used to represent for all practical purposes the financial position of the Government of Bermuda and the results of its operations, changes in its net debt and its cash flows”.
“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, changes in its net debt and its cash flows.”
To enable the preparation of summary statements for the Government as a whole, she noted that “it was recommended that the Accountant General should develop a concrete, achievable and resourced plan”.
While noting that the Ministry of Finance was “working towards” that goal, she also noted that the legislation enacted in 2014, which “directs the Accountant General to prepare consolidated financial statements including the accounts of all Government departments and public authorities”, could be an “important step forward”.
But she said: “The legislation also provides that the Minister shall decide the date or dates that the provisions of the Act come into operation.“Three years after the enactment of the legislation, no such dates have been announced”, although the Premier and Finance Minister, David Burt stated in March 2017 that “progress is being made”.
But he said: “It should be emphasised that consideration must be given to resources, accounting systems, management roles and other factors that are critical in the accomplishment of this task.”
While Ms Thomas agreed that the transition is a “complex task”, she said: “Government organizations are not homogeneous and dedicated resources will be required to complete the task in a reasonable time.
“It is absolutely essential that summary financial statements showing the results of operations and the financial position of the whole of government be available to support the hard decisions necessary to bring the debt and the deficit under control.
“Only if Government’s financial statements account for the full nature and extent of the financial affairs and resources which the government controls can the citizens of Bermuda begin to understand and assess the management of the public financial affairs and resources entrusted to the Government.”
“Consequently, I have given notice to the Minister of Finance, unless during the financial year for the year ending March 31, 2018, (a) the Minister establishes the dates when the provisions of the Public Treasury (Administration and Payments) Amendment Act 2014 pertaining to the production and audit of full consolidated financial statements for the Government of Bermuda will come into operation and (b) I am provided with a concrete, achievable and resourced plan that addresses production of summary financial statements for the Government of Bermuda for the year ending March 31, 2019, I will, starting with the Consolidated Fund financial statements for the year ending March 31, 2018, expand the paragraph in my Auditor’s Report to stress that the financial statements of the Consolidated Fund are deficient because they do not represent the full nature and extent of the overall financial affairs and resources of the Government of Bermuda.”Two recommendations were attached:
♦ Recommendation No. 1:
The Government should prepare and issue summary financial statements for the Government as a whole, starting with the year ending March 31, 2019. To enable this, (a) the Minister of Finance should establish the dates when the provisions of the Public Treasury (Administration and Payments) Amendment Act 2014 pertaining to the production and audit of full consolidated financial statements for the Government of Bermuda will come into operation, and (b) the Accountant General should develop a concrete, achievable and resourced plan.
♦ Recommendation No. 2:
To ensure the sustainability of public services, Government should develop as soon as possible a long-term strategic plan to reduce the deficit and the level of public debt, aimed not only at adapting to the current and future economic environments but also at influencing those envi
♦ On Bermuda’s Deficit, the Auditor General’s Report states:
The accumulated deficit as at March 31, 2016, has grown to $2.74 billion, up by $1.47 billion (116.8%) in the five years then ended.The borrowing and, more specifically, the public debt and net debt amounted to $2.22 billion and $3.48 billion respectively, at March 31, 2016.
The legislated borrowing limit was last increased in the 2012/13 financial year and currently sits at $2.5 billion. The interest bearing debt resulted in interest costs of $116.2 million for the year ended March 31, 2016, close to 10% of the total expenses of the Consolidated Fund.
Reflecting an increasing level of debt and public concerns regarding its sustainability, in the previous report regarding the Consolidated Fund, it was recommended that Government should establish and communicate a plan to reduce the deficit and level of public debt…
Aside from better control of spending in relation to legislated limits, the financial condition of the Consolidated Fund is not improving.
There needs to be an immediate long-term strategic plan developed (and circulated Government-wide) to provide a roadmap as to how revenues may be increased, how expenditures can be reduced, what levels of service may be expected and how the infrastructure of Government could be improved to support its long-term goals. The focus of the strategic plan should be not only on adapting to the current and future environments but also on providing a road map for influencing the future.
