Qualified Audit & PAC Politics

The latest report from the Accountant General’s, and the first I believe by the new Accountant General, is quite frankly, not good. I am not an expert on auditing terms and processes, but I understand that the giving of a ‘qualified audit’ is not a good result at all. I do not believe the full report is available yet, but I am looking forward to reading it when it is.

While it is correct that the economic recession/depression is a factor, at least in the drop in revenues, this is only a small factor when compared to the cost overruns and apparent misspending of public monies. Whether it is true that public monies have been misspent, what is clear is that the Government has so far failed to both fully address the needs of the Accountant General sufficiently to avoid a qualified report, and the public perceptions, rightly or wrongly, that the government has failed to handle public finances appropriately.

The PLP, as the government, must take a hard look at its handling of the public finances and ensure that there is no repeat ‘qualified audits’. While it has the luxury of having no credible challengers in the political field, the Party should not risk disappointing the public too much – and should take a more pro-active approach in preventing even the perception of wrongdoing.

From that point, the headlines about the PLP ‘no show’ for the Public Accounts Committee (PAC) certainly aren’t good, at least at first glance. However, reading the report in more detail, it seems that the UBP is playing petty political games with the PAC. At most the rules governing committees such as the PAC need reformed. From my perspective, committees like this should require a certain number of members to attend, a minimum quorum, in order to proceed. And if such a quorum is unable to meet, then the meeting should be rescheduled. I find it hard to believe that a sufficient quorum could consist of just the UBP members, as Mr. Cole Simmons seems to suggest.

I do question however how the two PLP MPs somehow failed to adequately schedule their availability, and this is something that should also be addressed. Which goes back to the question of how to hold MPs and Senators accountable in the sense of attendance for the House, the Senate and committees.

I am increasingly tired of the PLP resorting to the pathetic excuse that the UBP has no right to question them on account of the UBP’s mis-government pre-1998. The PLP was elected to not repeat the mis-governance of UBP. While the PLP has undoubtedly improved on the UBP’s performance, there are still too many instances of UBPesque actions, of which the farcical situation of the Bermuda Cement Company is just one (perceptions of crony capitalism is another). I don’t care about how the BCC under the UBP was allegedly run ‘like Northern Rhodesia’ or any rot like that. If the previous management of the BCC was forced out because it failed to comply with Government/Wedco, then the failure of the current management to also comply with those requests, then it should be held accountable.

Advertisements

24 thoughts on “Qualified Audit & PAC Politics

  1. to hear the govt defend wasting 200million dollars by regurgitating upb history IE ” u all did it too” = they are not fit to be the govt.

    the people need to protest to the govenor under no confidence in the plp no confidence in the ubp and have the uk reform Bermuda like they reformed turks.

    Edited for fowl language

    (ALL POWER TO THE PEOPLE BY AL MEANS NESICARY

  2. Jonathan the plp are stonewalling the PAC. You do realise that they have not even finished considering the last qualified audit opinion written by Larry Dennis?

  3. Please Jonny, who cares about financial responsibility? Don’t you know that we’re in the midst of a worldwide economic catastrophe!? How do you expect the PLP to put together reliable accounts at a time like this? How do you expect them to properly manage capital spending when world leaders have united in acknowledging that the global markets are in haywire.

    The PLP continue to provide Bermuda the strength to weather this storm.

    There, does that accord with the standard PLP response? Mention exogenous factors outside control as blame source? Check.
    Oh wait I forgot, the UBP did it too, and they were like slave owners. Oh got that in there. Check.

    Please, recession has nothing to do with probably accounting for your spend. But who cares. When you’re the PLP you can just release statements like Minister Cox’s and your support base will be happy and vote you back in.

    I mean really, they’re the PLP, let’s just trust them. Who needs accounts and audits?

  4. I am not an expert on auditing terms and processes, but I understand that the giving of a ‘qualified audit’ is not a good result at all.

    Jonny, it goes beyond “not good” – in the business world it’s pretty much catastrophic and the board would take action – the senior management of the company would be gone pretty much instantly and a new executive would be installed to clean up the mess.

    And don’t forget that this is the second time that the Auditor General has qualified their opinion. Last time EFB demanded Larry Dennis’ head. And now we’ve got a second individual reaching the same conclusion.

    Let’s be clear. The audit was qualified because of a lack of controls (i.e., the government doesn’t monitor expenditures properly to confirm that payments are valid, and so forth – basic stuff that should have been corrected since the last audit – think of it as the governmental equivalent of checking your credit card statement before you pay it).

    The fact that budget projections were off by $100 million is a different question and the attempt by Ms. Cox to link the lack of controls to the global economy would be laughable if it wasn’t clear that she clearly expected people to buy into it. And as an observation, the vast majority of that $100 million shortfall related to spending not to income. To point out the obvious, the amount that government overspent is not dependent on the global economy.

  5. Jonathan,

    I think you meant the report by the new Auditor General, not Accountant General. I too will await her report and the Finance Minister’s comments before I make a comment.

    As far as the PAC is concerned, you are correct. The UBP was/is playing petty politics. MP Walter Lister gave a thorough explanation to the House of Assembly on Friday, however the Royal Gazette only chose to print what they wanted the people to believe. Mr. Richards knew that the meeting could not proceed without a quorum, however he told the House “whether there was a quorum or not, I will go ahead with the meeting”.

  6. Technically speaking, although it is the report of the Auditor General, the report was not written by Mrs. Jacobs Matthews.

    On December 12, 2009 Tim Smith wrote “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.”

    Mrs. Jacobs did not take up her position until September, 2009 as Mr. Dennis retired at the end of August.

    That is not to say that she is not in agreement with Mr. Dennis’ position on the matter.

  7. Really, there is not any possible logical excuse on this one.
    I must admit, I thought Paula Cox was capable of much better.
    As far as Dr. Brown’s department, not surprised really at all. I’m sure it will be blamed on the government workers.

  8. Blanks,

    I’d wager if you went out onto the street and asked a handful of passers-by, “do you know why they government got a qualified audit?”, one, they probably would have little clue what that was and two, they would then try to waffle past their ignorance and say, “probably because of the bad economy”.

    No one cared about the last qualified audit, why would they care about this one?

    How many years can you screw up like this before you lose your jobs?

  9. “A Qualified Opinion report is issued when the auditor encountered one of two types of situations which do not comply with generally accepted accounting principles, however the rest of the financial statements are fairly presented. This type of opinion is very similar to an unqualified or “clean opinion”.

    but maybe this time the sky really is falling

  10. Paula had the chance to extricate herself from what she must have seen was a mess in the making, and she blew it.

    Locked into cabinet collective responsibility, meant the only one she could have distanced herself from this one was to challenge Brown for the Premiership.

    She chose not to, and as such is now welded into the mess. In addition, anything she says publicly now does not earn the respect her words once used to have. Indeed her words of late have a real ‘spin’ feeling about them as Blankman alludes to above with her linking lack of controls to the global economy.

  11. Jonathan, do you find it interesting that there’s been no mention of this statement by the Minister of Finance in the Royal Gazette?

    LaVerene

    ‘Today, Finance Minister Paula Cox welcomed the Auditor General’s qualified audit opinion. Minister Cox:

    Mr. Speaker, I note that the annual accounts of the Consolidated Fund of the Government of Bermuda were given a qualified audit opinion. This qualification relates to the Auditor General’s opinion that there were deficiencies in internal controls in the management of certain capital development projects. Mr. Speaker, the detailed reasons for the qualification on the accounts will be included in a Special Report of the Auditor-General which will be tabled in this Honourable House. The usual parliamentary procedure would then apply whereby the Special Audit Report will be referred to the Public Accounts Committee for review. The Committee then tables its report with recommendations and there will be a formal response from the Government through the Minister of Finance in writing. There is also scope for separate Ministerial Statements from the relevant and accountable Ministers where their Ministries may be the subject of any financial shortcomings noted in the Special Report. Therefore it would be premature at this juncture to provide detailed commentary on a report that has yet to be tabled.

    However Mr. Speaker, it has to be said, quite simply that when an Auditor-General speaks, Governments 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.

    The Finance Minister went on to discuss the international economic crisis and it’s impact on Bermuda and our 2008/2009 estimates. Minister Cox:

    Mr. Speaker, it is important to note that when the 2008-2009 budget estimates were made in February 2008, it was against the background of a possible recession in the US economy and a slowing down of growth rates in other major economies. During 2008 there were seismic shifts in the financial landscape of the world economy. The bewildering collapse of some landmark corporate institutions happened almost in a twinkling of an eye. There were a number of casualties and these included Lehman, Bear Stearns, Merrill Lynch, Washington Mutual, Wachovia, AIG, and there are others.

    Mr. Speaker, the global economy is an unfolding narrative as opposed to a finite position. The economy is not a static instrument and there have had to be assumptions made and some modeling done but the economic picture has been constantly evolving. Assumptions have had to be re-assessed in light of the changing evolving circumstances.

    In 2008 Charles Bean, the Bank Of England’s deputy governor in noting that elements of the global economy had troubled lots of economists and policy makers for a long time stated: “We knew they were unsustainable and worried that the unwinding might be disorderly, though I don’t think that anyone could have guessed the course that events would actually take.”

    Mr. Speaker, when scrutinizing the Consolidated Fund Financial Statements for 2009 it is important that the above-mentioned circumstances be considered.

    Out of our commitment to transparency and openness in Government, the Finance Minister went on to present the highlights of the Consolidated Fund Financial Statements 2009:

    The total revenue raised by the Consolidated Fund for fiscal 2008/09 were approximately $952.3 million, an increase of $24.4 million (2.6%) from the prior fiscal year but falling short of original budget estimates by approximately $32.4 million (3.3%). The most significant generators of revenues for fiscal 2008/09 were Payroll Taxes accounting for $356.5 million or 37.4% (2008 – $337.8 million or 36.4%), and Customs Duty accounting for $224.2 million or 23.5% (2008 – $229.5 million or 24.7%). Revenues were below budget in 2008-2009 mainly due to shortfalls in Customs Duty ($35.6 million below), Stamp Duty ($13.8 million below), Immigration Receipts ($6.4 million below) and Passenger Taxes ($3.3 million below). These amounts were partially offset by above budget receipts in Payroll Tax ($21.0 million) and International Company Fees ($8.6 million).

    Mr. Speaker, it should be noted that although the 2009 revenues were moderately below budget (3.3%), overall these results compare quite favourably to the revenue intakes of other Governments during this unprecedented global financial crisis. For instance during financial year 2009, the U.S. government collected $2.1 trillion, about $400 billion (16%) less than the prior year and 22% below the original revenue estimate of $2.7 trillion.

    Also Mr. Speaker, the Ministry of Finance has noted a report that revealed across OECD countries, tax receipts as a proportion of GDP fell in 2008 whereas the ratio was unchanged between 2006 and 2007.

    Current expenses on an accrual basis for fiscal 2008/09 were $1,112.2 million (2008 – $1,022.9 million). The three largest components of current expenses were employee costs, grants and contributions and professional services. Employee costs accounted for $579.7 million or 52.1% (2008 – $529.3 million or 50.5%). Grants and contributions accounted for $234.9 million or 21.1% (2008 – $215.4 million or 21.1%) and professional services accounted for $95.5 million or 8.6% (2008 – $85.9 million or 8.4%). Mr. Speaker let me make it clear that the line item for professional services of $95.5 does not represent overseas consultants. As stated on innumerable occasions, professional services covers all government contracts for cleaning, security, legal aid, Works and Engineering maintenance, contracted services for the Department of Airport Operations, health insurance portability claims, war pensioner medical claims and other locally contracted services.

    Mr. Speaker total current account expenditure on a modified cash basis was $994 million, which was $32.4 million higher than original budget estimates. Expenditures were above budget in 2008-2009 primarily due to the following items:

    unanticipated increases in police salaries from arbitrated awards;
    above budget expenditure on teacher’s salaries;
    increased expenditure on Government’s health subsidy programme for the youth, aged and indigent;
    increased employee overhead relating to legislated contributions to the Public Service Superannuation Fund.
    Mr. Speaker total capital account expenditure was $199.8 million, which was $45 million higher than original budget estimates. Capital development expenditure was $38.7 million above original budget while capital acquisitions were $6.3 million over original budget.

    Mr. Speaker, net additions to Tangible Capital Assets totaled $192.3 million (2008 – $57.8 million) in the current year, with one new asset class totaling $114.0 million, being added to the Government’s register of assets. The new class included infrastructure which has been added in accordance with public sector accounting requirements. Included in the net additions of $192.3 million was a net transfer of $88.0 million from Construction in Process (2008 – $8.7 million) to completed projects.

    Mr, Speaker, Net Public Debt increased by $204.9 million (2008 – $80.5 million) during fiscal 2008/09, standing at $483.3 million at the end of the year. This increased borrowing level was the result of revenues being below budget and expenditures exceeding budget limits as mentioned above. The actual net debt to GDP ratio at this time was about 7.9 %. The annual debt service cost, which consist of interest on long term debt and the annual Sinking Fund contribution for the year was 3.2 % of total revenue.

    Mr. Speaker, even with the increased borrowing, the level of public debt as a percentage of GDP is still moderate when compared to other countries and remains one of the lowest, if not the lowest, debt policy ratios amongst developed modern economies.

    That’s an important point. These are tough economic times and we’re doing what it takes to keep our social safety net that protects people in place during this crisis. We’re not only holding the line – we’re expanding social services and our debt policy rations are still among the lowest in the developed world. Minister Cox concludes:

    Mr. Speaker, the statements of the Consolidated Fund provide valuable information on the financial position of the Government and I would encourage the public to examine these statements.

    Mr. Speaker there is no doubt that the global recession is having a negative impact on Government finances worldwide, but I wish to assure the public that the Government is sensitive to these challenges and is committed to strengthening the way in which it manages and controls Bermuda’s public finances. This Government has a longstanding commitment to prudent fiscal policy and I have every confidence that this will continue.

    The PLP Government will continue to ably guide Bermuda’s ship through this international economic storm.”

  12. “However Mr. Speaker, it has to be said, quite simply that when an Auditor-General speaks, Governments listen and take heed.”

    Is that PLP speak for “When the Auditor-General speaks a financially competent government listens and takes heed but, we on the other hand ignore it, blame the UBP and look for ways to discredit the Auditor so that the next time around they’ll do what we tell them”?

  13. do you find it interesting that there’s been no mention of this statement by the Minister of Finance in the Royal Gazette?

    Laverne, I read Ms Cox’s statement and it’s just more of the same. If anything it makes it worse. After a second qualified audit she’s trying to blame a lack of internal controls on the global economy.

    She even tries to blame the $100 million deviation from the budget on the global economy – since most of that was due to overspending as opposed to a shortfall in revenues that doesn’t wash either.

    I have to admit that I’d honestly expected better from her than that. I’m disappointed.

  14. This too shall pass. Why? Because anyone who bothers to point out the seriousness of the situation will be shouted down as a white racist or an Uncle Tom.

    This too shall pass

  15. @ Ms Furbert, I’d read Ms. Cox’s comments, but as you’ve decided to cut and paste them, I think it’s worth re-reading this section:
    “Mr. Speaker, it is important to note that when the 2008-2009 budget estimates were made in February 2008, it was against the background of a possible recession in the US economy and a slowing down of growth rates in other major economies. During 2008 there were seismic shifts in the financial landscape of the world economy. The bewildering collapse of some landmark corporate institutions happened almost in a twinkling of an eye. There were a number of casualties and these included Lehman, Bear Stearns, Merrill Lynch, Washington Mutual, Wachovia, AIG, and there are others.

    Mr. Speaker, the global economy is an unfolding narrative as opposed to a finite position. The economy is not a static instrument and there have had to be assumptions made and some modeling done but the economic picture has been constantly evolving. Assumptions have had to be re-assessed in light of the changing evolving circumstances.

    In 2008 Charles Bean, the Bank Of England’s deputy governor in noting that elements of the global economy had troubled lots of economists and policy makers for a long time stated: “We knew they were unsustainable and worried that the unwinding might be disorderly, though I don’t think that anyone could have guessed the course that events would actually take.”

    Mr. Speaker, when scrutinizing the Consolidated Fund Financial Statements for 2009 it is important that the above-mentioned circumstances be considered.”

    That’s about half of her comments. Dedicated to telling us that it’s hard to predict the global economy. I agree. That might result in shortfalls in revenue. That’s fine.

    What it doesn’t explain is:
    1. Capital Expenditure was 30% overbudget.
    2. Net Public debt rose c. 75% in one year.
    3. Why we are still failing to get a fully qualified audit.

    No one is blaming the PLP for overall revenues having fallen, that was always a risk (IB, tourism etc). But irresponsible public projects, irresponsible general spend and needlessly heaping debt on future generations is on them.

    @ Vanz – A few years ago you would cite that the PLP had demonstrated year on year growth, no debt and increased IB as proof the sky wasn’t falling. It’s interesting to note that this year you’re having to say, well we only failed a little bit.

  16. “Jonathan, do you find it interesting that there’s been no mention of this statement by the Minister of Finance in the Royal Gazette?”

    Actually Laverne it was published in the RG. I find it interesting how you can make such claims and not even bother to research the vailidity of them in the first place. Anyways keep on distracting/slandering:

    http://www.royalgazette.com/rg/Article/article.jsp?sectionId=60&articleId=7d9c7ba30030005

    And as someone mentioned before poor internal controls and massive overspending has nothing, absolutely nothing, to do with the global recession. Just poor fiscal management, whether you want to admit it or not.

  17. It’s all about blaming someone else and poor excuses.
    They were warned in 2007 and DID NOTHING TO CUTBACK!!!!
    They choose to ignore warnings and continued to spend frivilously.
    Travel, travel, and more travel. THE PROBLEMS ARE HERE and SO ARE THE ANSWERS.

  18. They tore down the fences in St.Davids to facilitate affordable housing.

    They built fences around the bosses house to protect the boss.

    Who’s protecting the people.

    The police are doing a great job and I am sure their homelife is suffering.

    These…never mind. Off topic but the core of it all.

  19. Interesting that when last year’s announcement was made Larry Dennis was immediately denounced. This year Paula Cox welcomes the qualified audit – how absolutely ridiculous to welcome a quailified audt! But as Ms Furbert has correctly pointed out, the audit must have been completed by Larry Dennis’ team before he retired, and Ms Matthews signed off. Ahh but as it was signed by “someone who looks like me” it’s OK. Paula Cox has shown she is totally out of her depth to be Minister of Finance. It is clear that using the credit card to pay the credit card debt can only lead to financial ruin but this is where Bermuda is now. 2010 will be the watershed year as income drops but spending continues.
    The conspiracy theorist may say that the Premier will use this to throw his Finance Minister under the bus by blaming her for the mess and proclaiming he is the one to save Bermuda, and although he said he would retire in October, he has been persuaded to stay and save Bermuda. Add in the crime and Bermuda has indeed sunk to the “next level” as promised by this Government.

  20. But as Ms Furbert has correctly pointed out, the audit must have been completed by Larry Dennis’ team before he retired, and Ms Matthews signed off.

    I somehow doubt that Ms Matthews simply signed off without satisfying herself that the audit had been properly performed and the report and conclusions were correct. I believe that as a Chartered Accountant she’d be in violation of the code of conduct of her profession if she did so.

  21. Agreed Blankman and that’s precisely the point. The 2007/8 qualified audit brought out the dogs of war against Larry Dennis, yet this year the Government welcomes the same qualification, even though the audit was undertaken by Larry. Ms Matthews must have reviewed his work and agreed. So one year the audit is trashed and the next welcomed. Do they even think before they talk?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s