Mr. Speaker, I rise today to advise Honourable Members of the completion of the audit of the Consolidated Fund Financial Statements for the year-ended March 31, 2018, which were tabled in this Honourable House today. 
 
As Honourable Members are aware the Consolidated Fund is the general operating fund of the Bermuda Government and is the Fund through which Government conducts the majority of its transactions. The Consolidated Fund financial statements report the financial position, operations, change in net debt and cash flows resulting from the activities of the Government. This includes the accounts of the Senate, the House of Assembly, all Government departments and offices and all courts.  
 
Mr. Speaker, I am disappointed to report that the Auditor General gave a qualified audit opinion on the 2017/18 annual accounts of the Consolidated Fund (the “CF”) of the Government.  The CF has previously received an unqualified opinion each year since March 31, 2013. The two bases for the qualified audit opinion are as follows: 
 
1. Sufficient and appropriate  audit evidence  was not provided  to support the accuracy and completeness of $10.3 million of capital development expenditures incurred during the year;  
 
2. A validation process for the payroll tax returns, which is used to provide assurance on the reasonableness of payroll taxes received, was not completed prior to the completion of audit fieldwork. 
 
Mr. Speaker, regarding the Auditor General’s capital expenditures qualification, Honourable Members are advised that the concerns specifically relate to amounts reported for Assets Under Construction on the Statement of Financial Position and capital expenditures. The approximately $10 million, in the view of the Ministry of Finance, does not cause the audited financial statements to be misleading to users. The inability of the Auditor General to obtain sufficient evidence to support this amount is not indicative of a lack of existence of the support, but the inability by Government to provide it in a manner timely enough to meet the Government’s reporting deadline. 
 
In relation to the Auditor General’s payroll tax and related accounts receivable qualification, Honourable Members are advised that these line items are reported on the Statement of Operations and Accumulated Deficit, and Statement of Financial Position respectively. It is noted that as the largest individual contributor to Government’s revenues at $457 million (of $1.1 billion total revenue for the year), the auditor was unable to gain comfort with only a portion of 4th quarter payroll taxes being verified due to the ongoing returns validation process by the Office of the Tax Commissioner.  
 
Mr. Speaker, Honourable Members are aware that in the 2017/18 Budget, the former Government reformed the payroll tax system to provide progressivity in the employee portion of payroll tax. The implementation of this reform was delayed from April to July 2017 to allow employers to gain a better understanding of the reform and to undertake and complete the various task needed for proper implementation. Despite this delay, some employers still submitted payroll tax returns with various errors. Due to the above and the manual nature of the validation process, this work was not able to be completed in time to meet the Government’s reporting deadline.  
 
Honourable Members are advised that the full year’s validations were completed subsequent to the Government’s reporting deadline and the results indicate that the reported payroll taxes are in line with numbers reported in the CF Financial Statements. Again, it is the view of the Ministry of Finance that the payroll tax revenue and corresponding accounts receivable reported do not cause the audited financial statements to be misleading to users. 
 
Mr. Speaker, certain private debt placements made by the Government contain a reporting covenant requiring delivery of the audited financial statements within two hundred forty (240) days of the fiscal year end (November 26, 2018) and I can report that this reporting covenant was met.  
 
Mr. Speaker, the Government could have avoided the above mentioned qualification by delaying the audit and allowing the Auditor to gain comfort with the items leading to the qualified audit opinion. However, this would have caused the Government to be in breach with our reporting covenant in our private placement agreements.  
 
Honourable Members are advised that the total penalty fees paid to Bermuda’s Private Placement Note Holders as a result of the Government of Bermuda financials being submitted late for the years 2015 & 2016 are as follows: 
 
Year end:  2015 - $410,000 Year end: 2016 - $640,000 
 
After carefully considering this matter, I, as Minister, decided it was prudent to accept the qualification rather than to unnecessarily spend taxpayer funds to our private placement note holders. Mr. Speaker, the Government will work with the Auditor General and take the required steps to ensure that these qualifications are removed in the future. 
 
Mr. Speaker, under the Audit Act 1990, section 6(1) (b), the Auditor General is able to include in her report, any other comments she considers appropriate. Accordingly, the Auditor General has, for the eighth consecutive year, included explanatory paragraphs as ‘other matters’ which she deems appropriate. These “other matters” relate to the following: 

• The increased level of the net debt and the need for the Government of Bermuda to take concerted action to address it;
• The preparation of Summary Financial Statements for the Bermuda Government. 

 It is important to note that these explanatory paragraphs do not alter the Auditor General’s opinion, but are highlighted matters. However, the Government shares the Auditor’s concerns in these areas and has already started to tackle these matters. For instance Mr. Speaker, the Ministry of Finance has already put in place a plan to eliminate the deficit and ultimately reduce the debt.  
 
Mr. Speaker, liabilities related to pension and other employee future benefits are also included in the “Net Debt” amount disclosed in the Financial Statements and the Government has already started the review of these benefits to ensure their sustainability.  
 
Mr. Speaker, with regard to the preparation of Summary Financial Statements for the Bermuda Government, the Ministry agrees there are benefits to issuing consolidated financial statements, however Honourable Members are advised that there are other associated issues that need to first be addressed before proper consolidation can take place, and the Ministry notes that it would be prudent to have all of the audits of public authorities current to ensure the Summary Financial Statements are not misrepresented to users.  
 
The audit report date is November 19, 2018 (2017 – November 20, 2017).  
 
Mr. Speaker, financial highlights of the 2018 Consolidated Fund Financial Statements show that revenues exceeded budget projections, and spending was below original budget estimates resulting in the fiscal outturn, on all measures, better than forecast.   
 
Mr. Speaker, the Ministry will be providing full commentary on the actual fiscal performance for 2017/18 in the Pre-Budget Report in Advance of Fiscal 2019/20, therefore I do not propose to go into detailed highlights at this time.  
 
Meanwhile 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.  
 
Thank you Mr. Speaker