Premier's statement on the Commission of Inquiry

Premier’s statement to the House of Assembly, March 13, 2017 

RE: Commission of Inquiry into the Report of the Auditor General on the Consolidated Fund of the Government of Bermuda for the Financial Years ending March 31, 2010, 2011 and 2012


Madame Deputy Speaker,

In late December 2015, by the authority of the Commission of Inquiry Act 1935, and with the support of the Governor and the Head of the Civil Service, I announced the intention to form a Commission of Inquiry to investigate the issues raised in the Report of the Auditor General on the Consolidated Fund of the Government of Bermuda for the Financial Years ending March 31 in 2010, 2011 and 2012.

That report, which was tabled in the House of Assembly the previous month, marked the fifth straight year that government financial statements were given a qualified opinion; that was five straight years in which the Auditor General could not say that the financial statements of the government of the day presented a true and fair picture of its management of the people’s money.

The report described serious problems of accountability and control in the administration of the public purse – problems that harmed the financial well being of Bermuda

The Auditor General pointed to an “ingrained” tendency within government to overspend budgets in ways that raised questions about spending controls, cash management and the credibility of the budget process.

The most serious area of concern identified by the Auditor General was government failure to obey its own Financial Instructions. These instructions exist to impose financial controls that are consistent with international best practice and essential to upholding principles of accountability, value for money, fairness and transparency.

The Auditor General reported millions of dollars spent without Cabinet approval, millions of dollars paid without signed contracts, tens of millions of dollars committed to contracts not tendered and millions paid to consultants without prior approval.

The findings were, to say the least, disturbing.

At the time I said:

“There is no future for Bermuda, as we know it, if there are no adequate safeguards to prevent the practices described by the Auditor General from taking place again. They have contributed to the unsustainable spending deficits that have pushed public debt to the absolute limits of our ability to manage it. The situation is a danger to our international reputation, our solvency, even our self-government. We need to be sure that we have the right controls in place for the future.”

The Commission of Inquiry, consequently, was formed to investigate the issues raised in the Auditor General’s Report on the Consolidated Fund for the Government of Bermuda for the 2010, 2011 and 2012 financial years.

More specifically, the Commission’s terms of reference were to:

  1. Identify breaches of Financial Instructions and how they arose
  2. Consider the adequacy of safeguards and the system of accountability
  3. Make recommendations to prevent recurrences and to mitigate financial, operational and reputational risks
  4. Refer any evidence of possible criminal activity, which the Commission may identify, to the Director of Public Prosecutions or the Police
  5. Draw to the attention of the Minister of Finance and the Attorney General any scope, which the Commission may identify, to secure recompense under the Public Treasury Act, including Financial Instructions, and Civil Asset Recovery.

While this was a Government initiative undertaken for the better governance of the people of Bermuda, it was an initiative that was wholly supported by the Governor and the Opposition.

On February 24, 2015, the day the Commissioners were appointed, then Governor George Fergusson said:

“It is right that these (serious questions raised by the Auditor General) should be fully investigated… All Bermudians have an interest in ensuring that the apparent breaches of financial instructions and related rules and conventions cannot be repeated…” 

Mr. Marc Bean, who was then Leader of the Progressive Labour Party, also welcomed the appointment of the Commission, saying:

“Bermudians need to know that our civil servants, elected officials or Government Ministers have not acted either unethically or illegally, but also that no one is above the law.”

Madame Deputy Speaker, those words reflect my sentiments and concerns exactly, and those of my colleagues, and they underscore the government-wide determination to find out and to fix what has not been working for the public interest.

 

Madame Deputy Speaker,

The Commission recently completed its extensive report and on the weekend delivered a pdf copy to me which has now been posted online. I would urge everyone with an interest in these matters to go to https://www.gov.bm/commission-inquiry-report-commission to read the Commission’s report.

Before addressing the Commission’s recommendations, I want to express my thanks and appreciation for the work of the Commissioners – Chairman Sir Anthony Evans, The Hon. John Barritt, Mr. Kumi Bradshaw and Ms Fiona Luck. 

They have carried out their work with diligence, fairness and impartiality.

There are two aspects of the Commission’s approach to its work that deserve particular mention:

  • Its close attention to upholding its independence, which it did by engaging all persons with whom it dealt, including this Government, “at arm’s length”, and
  • Its commitment to transparency, which Sir Anthony reflected in stating publicly that the Commission’s intention was “to establish all relevant facts and expose them to the public gaze so far as lawful privilege… will allow.” They did this through public statements on the purpose and progress of their work, open hearings and online updates of those hearings.

The Commission, in its report, said it was gratified with the level of cooperation it received in conducting its work, citing witnesses called, the Office of the Auditor General, the Secretary to the Cabinet, Government Heads of Department and the many civil servants who helped to facilitate its work.

As Premier, I take this opportunity to echo that appreciation because it reflected professionalism within the Civil Service and also a far-reaching civic responsibility and willingness to help strengthen governing principles of Bermuda so that our government can perform better for the people it is elected to serve.

It is incumbent on us as citizens, as Parliamentarians and as a government to do our best at all times to make things work better for the people, and the Commission of Inquiry stands as an example of that.

 

Madame Deputy Speaker,

I would now like to provide an overview of the Commission’s work and its findings.

In keeping with its terms of reference, the Commission focused on the Auditor General’s Report for the financial years 2010 to 2012, reviewing thousands of pages of documents and calling 21 witnesses. 

The primary focus of its work was Section 3 of the report, which contained audit findings that the Auditor General said “point to a general failure to follow the rules (Financial Instruction) established by Government for the safeguarding of public assets.”

There are 17 headings within Section 3 involving either government transactions with third parties outside Government or issues involving failures to comply with internal accounting or procedural standards.

The headings the Auditor General used to describe what the Commission characterized as “third party issues” is indicative of the serious matters the Commission was asked to review; headings such as:

  • “Millions paid without signed contracts or agreements”
  • “Significant contracts not tendered”
  • “Duplicate payments”
  • “Overpayments”, and
  • “Millions paid for professional services without prior approval.”

In addressing third party issues, the Commission focussed on 12 transactions. These included

  • The TCD Testing Centre
  • Government department renovations and building projects
  • The purchase of sand and rock for asphalt
  • Construction of the Magistrates’ Court/Hamilton Police Station
  • Untendered contracts to Ambling and Global Hue
  • Port Royal Golf Course improvements, and
  • The Heritage Wharf development.

In light of rumours at the outset of its work that police were investigating some of these matters, the Commission learned through questions submitted to the Bermuda Police Service that investigations were indeed underway and ongoing.

On this point, I want to commend the Commission for the care and consideration it took in addressing its responsibility to “refer any evidence of possible criminal activity” to the Director of Public Prosecutions or the Police. In particular, its caution in pointing out that a finding of “possible criminal activity” should not indicate evidence of guilt, and that the “naming of an individual does not imply any finding of guilt.” 

Indeed, the Commission noted that it was “not required, or entitled, to make any finding of innocence or guilt. (It was) required only to refer to the police and the Department of Public Prosecutions any evidence of ‘possible criminal activity.’” 

In that regard, the Commission did find evidence of “possible criminal activity” in seven of its inquiries into “third party issues” and, in accordance with its terms of reference, referred them to the Bermuda Police Service. These findings in were made in relation to the contract awards to Ambling and Global Hue, the TCD Testing Centre, the purchase of sand and rock for asphalt, the Magistrates’ Court and Hamilton Police Station project, the Port Royal Golf Course improvements and the Heritage Wharf cruise ship pier. 

Details of these findings can be found online at https://www.gov.bm/commission-inquiry-report-commission, and as they are now subject to Police investigation I will withhold any further comment at this time.

The second part of the Commission’s Section 3 inquiries centred on issues involving failures to comply with government’s internal accounting or procedural standards.

This work was conducted in accordance with the Commission’s mandate, as gazetted on April 15, 2016, to “make recommendations to prevent and/or to reduce the risk of any recurrences of any violation identified and to mitigate financial operational and reputational risks to the Government of Bermuda.” 

The Commission made 50 recommendations for the safe and effective management of the public purse and organized them into 10 areas, which focused on:

  • Establishing more effective working relationships between Government ministers and senior civil servants
  • Improving transparency and safeguards against conflicts of interest
  • Improving the effectiveness of Financial Instructions
  • Clarifying Accounting Officer responsibility
  • Strengthening the offices responsible for safeguarding the public purse
  • Enhancing Parliamentary oversight of government spending
  • Holding civil servants responsible for responses to Auditor General reports
  • Making Government financial reporting more timely
  • Reviewing personnel and processes in the Civil Service, and
  • Holding Quangos more responsible.

 

Madame Deputy Speaker,

These recommendations are welcomed by the Government because they set the stage for the very thing the Commission was set up to achieve, which was, as I said in December 2015, “to break the back of bad habits, to heighten public understanding of the issues and to return the principle of accountability to the centre of government business at every level.”

Unfortunately, acting on them will not be a simple exercise. Many of these recommendations will require analysis followed by consultation, possible impacts on the Government’s collective bargaining agreement with the Bermuda Public Service Union and legislative change.

What I can commit to at this time is that the Government will start its review of the Commission’s recommendations forthwith, and update the public as we progress. Our initial and primary focus will be on Financial Instructions, which the Commission recommended be given the force of law by making them regulations.

In my view, the failure to follow Financial Instructions was the major fault at the centre of the findings by the Auditor General in her 2010-2012 report, and it is incumbent on us as a government to fix it.

We will also advance the principle of transparency in the management of the public purse. In that regard, we will take a close look at making oversight of financial operations more current and contemporaneous.

 

Madame Deputy Speaker,

These are the forward directions the Government will take as a result of the Commission of Inquiry’s report.

The reforms it generates will continue a multi-year process that began as a result of a review in 2011 by KPMG Advisory Ltd., which found that half the projects reviewed did not comply with Government policies and procedures with negative consequences for value for money and the perception of fairness in the Government’s procurement process. 

The Commission of Inquiry report is the next step in this drive to strengthen the overall governance of Bermuda and, more specifically, to institute the checks and balances necessary to make the Government more accountable and transparent to the people we are elected to serve.






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