Martha Myron

Raising concern about financial accountability

  • Under scrutiny: out of 64 audits or reviews of annual financial statements of government-controlled and other organisations and funds, 24 resulted in qualified opinions or disclaimers of opinion from the Office of the Auditor-General (Image by Tumisu from Pixabay)

This week we review the report of the Auditor-General for completion of audit work for the financial year that ended March 31, 2018.

Eight days ago the report was tabled in Parliament. It was submitted by Auditor-General, Heather Thomas, to the Bermuda Government and the Speaker of the House on June 14.

The mission of the Office of the Auditor-General, derived from its legislative mandate, is to add credibility to the Government’s financial reporting and to promote improvement in the financial administration of all government ministries, departments and all other entities for which the Government is accountable to Parliament.

The Auditor-General states her objective is to serve the people of Bermuda and the officials they elect to represent them in Parliament by focusing on three broad areas:

• promoting accurate, timely and comprehensive financial information to support decision-making;

• examining the extent to which government programmes are designed and carried out with due regard to value for money (ie, economy, efficiency and effectiveness) and in accordance with legislation and regulations governing government activities, making recommendations for improvement where necessary; and

• reviewing the extent to which government ministries and departments are measuring and reporting on the effectiveness of their programmes (ie, is it clear what the programmes are supposed to achieve and what they are actually achieving?).

Ms Thomas states that these areas of focus “are essentially the same as those adopted by my predecessor; I believe they continue to make sense and they are consistent with the approach taken by legislative audit offices across Canada and the Commonwealth”.

This report includes the Auditor-General’s opinion of the results of the audit of the Bermuda Government Consolidated Fund for the fiscal year ended, March 31, 2018.

Further commentary is provided relative to financial statements: discussion, analyses, observations, compliance with legislation, financial instructions, statutory periods (for submission of government financial statements to the auditor), adherence to debt covenants, key indicators — such as fiscal sustainability, financial condition of the Government Consolidated Fund and auditor recommendations.

The Office of the Auditor-General has worked extremely hard during its reporting year to bring the reporting of the office up-to-date. Sixty-four audits or reviews were conducted and finalised (with more than a few encompassing up to seven-years worth of financial statements of various organisations) as anyone who takes the time to review will note.

Twenty-four organisations’ financial statements received less than stellar opinions, actually qualified or disclaimers, meaning that all was not well and that typically, sufficient, appropriate documentary support for amounts recorded in the financial statements was not available.

As a refresher for us ordinary folks, there are several categories of audit opinions:

• The best (also called a clean opinion) is the unqualified opinion where the auditor has concluded that the financial statements present fairly the results of the company’s operations and its financial position according to generally accepted accounting principles.

• The modified opinion. Not so good at all, a modified opinion, varying from not too pervasive, a qualified opinion to adverse opinion to complete disclaimer where the auditor is not even able to render an opinion. Any of the modified opinions are not desired outcomes.

The unqualified opinion is the most highly sought-after independent audit verification. Every company, government, non-profit, municipality, quango wants to be judged appropriately as doing their financial best ethically, in compliance with governance, legislation, regulation, and accounting processes.

An independent auditor, qualified, licensed, highly experienced, conducts financial analyses, investigations, third-party independent confirmations and many related tests to independently issue an opinion as to the state of a particular set of financial statements.

First the good news.

Our Auditor-General has issued her opinion for the Bermuda Government Consolidated Fund financial statements for the year ended March 31, 2017. The opinion reads as follows:

In my opinion, the financial statements present fairly, in all material respects, the financial position of the Consolidated Fund as at March 31, 2017, and the results of its operations, changes in its net debt, and its cash flows for the year then ended in accordance with public sector accounting standards generally accepted in Bermuda and Canada.

It should be noted that more than 5,000 audit hours each year are expended on the CF audit alone.

Further, the Office of the Auditor-General produced extremely dedicated work with the auditing of multiple years of

• 25 Government-controlled organisations;

• 13 government public funds;

• eight parish councils (reviewed seven, audited one) a review being a lower level of assurance than an audit;

• financial statements of four aided schools’ capitation grant accounts — 21 years of financial statements outstanding where the Office of the Auditor-General had to bring said years up to date;

• financial statements of other organisations:

We quote the Auditor-General’s comments, directly: “Out of the 64 audits or reviews of annual financial statements of Government-controlled and other organisations, funds, parish councils and aided schools’ capitation accounts that we completed during the year, 24 resulted in qualified opinions or disclaimers of opinion.”

Please see the downloadable PDF chart, which accompanies this article online, detailing these organisations and the audited/reviewed conclusions.

Ms Thomas added: “The number of qualified or disclaimed audit opinions, coupled with the fact that as at March 31, 2018 there were 40 organisations falling under my mandate that were at least one year behind with their financial statements (with a total of 133 sets of financial statements in arrears), is of great concern to me and, I suggest, should be to legislators and the people of Bermuda; the accountability process for Government is not functioning well.”

In matters of special importance addressed in her report, Ms Thomas said the Government was “making decisions without knowing the combined financial position of all the organisations that make up the government entity”.

Readers, don’t wait for me to summarise only a bit of this arduous work, performed every year for the Office of the Auditor-General.

You can read for yourself all the details laid out succinctly and professionally in The Royal Gazette report “Auditor to Government: get to grips with debt” by Jonathan Kent, published on November 16, with the OAG Annual Report downloadable online as a PDF attachment. Here is the link: https://tinyurl.com/wq9mszf

I urge you to have a good read. It is illuminating.

Next week: Matters of special importance, key indicators of the financial condition of the Bermuda Government Consolidated Fund as at March 31, 2018 and other observances, admonishments and recommendations.

Martha Harris Myron CPA CFP JSM: Masters of Law — international tax and financial services. Dual citizen: Bermudian/US. Pondstraddler Life, financial perspectives for Bermuda islanders and their globally mobile connections on the Great Atlantic Pond. Finance columnist to The Royal Gazette, Bermuda. All proceeds earned from this column go to The Reading Clinic. Contact: martha.myron@gmail.com