‘Disturbed With Findings, Lack Of Accountability’

[Updated with BTA response] In providing an update on the audit of the Bermuda Tourism Authority, Minister of Economic Development and Tourism Jamahl Simmons said he was “quite disturbed with its findings and the lack of accountability.”

Speaking in the House of Assembly today, Minister Simmons said, “In planning and performing the audit of financial statements of the Authority, the Auditor-General reviewed the accounting procedures and systems of internal controls to the extent that it was considered necessary to evaluate the system as required by generally accepted auditing standards.

“During the course of the audit, 13 areas of improvements and the need for strengthened internal controls strengthened were identified,” the Minister said.

They included:

1. “No evidence to support that either the Compensation and Remuneration Committee or the BTA Board ensured that the eligibility criteria for bonuses to the Executive Management team were met.
2. “Performance appraisal forms of selected employees were not provided by the Authority. The personal component of the incentive bonus calculation is based on the individual performance appraisal of the Authority’s employees.
3. “Lack of Board approval for 30% discretionary bonus to the former CEO.
4. “Credit balance in accrued income. A payment was incorrectly posted as a credit instead of bad debt recovery.
5. “Lack of signed contracts for services and sponsorships
6. “Payments made prior to completion of milestones
7. “Incomplete disclosures related to party transactions.
8. “Revisions to new capitalization policy. The Authority’s current policy does not contain requirements for asset identification numbers and regular verification of the register’s contents.
9. “Inconsistency in estimated useful lives. The Authority’s financial statements estimate the useful lives of equipment at 3-5 years whereas the Authority’s Master Financial Policy for depreciation is 5 years.
10.  ”The former CEO of the Authority referred to it as a private sector organization in June 2016 Board minutes. The Authority is, in fact, a Public Authority.
11. “In camera sessions of Board meetings. 12 of the 13 Board minutes for the year include in-camera sessions which are not recorded in the minutes.
12.  ”The Audit and Risk Committee minutes of September 2016 confirmed that the Committee would meet every quarter. However, there were no meetings held for neither the last quarter of 2016 nor the first quarter of 2017.
13.  ”Declaration of Interests by employees and potential employees. The Authority did not provide a response on whether they had received any declarations of interests from any employees and how this requirement is communicated to its employees.

“I can report that the Bermuda Tourism Authority has acknowledged the issues raised in the report and have begun to implement these recommendations,” the Minister added.

“However, it is unfortunate that such measures had to be identified through the audit process for actions to be undertaken to improve the level of transparency within this organization.

“The findings of this audit are unacceptable and I will be monitoring the BTA closely to ensure higher standards of transparency and accountability from the organization.”

The Minister’s full statement follows below:

Mr. Speaker, I rise today to provide this Honourable House with the summary findings of the audit of the Bermuda Tourism Authority [the “Authority”] for the year ending December 31, 2016 that was presented to me shortly after becoming the Minister with responsibility for the Authority.

I must say that I was quite disturbed with its findings and the lack of accountability – of which I will highlight further in my Statement.

Mr. Speaker, in planning and performing the audit of financial statements of the Authority, the Auditor-General reviewed the accounting procedures and systems of internal controls to the extent that it was considered necessary to evaluate the system as required by generally accepted auditing standards.

During the course of the audit, thirteen [13] areas of improvements and the need for strengthened internal controls strengthened were identified. These include:

1. No evidence to support that either the Compensation and Remuneration Committee or the BTA Board ensured that the eligibility criteria for bonuses to the Executive Management team were met.
2. Performance appraisal forms of selected employees were not provided by the Authority. The personal component of the incentive bonus calculation is based on the individual performance appraisal of the Authority’s employees.
3. Lack of Board approval for 30% discretionary bonus to the former CEO.
4. Credit balance in accrued income. A payment was incorrectly posted as a credit instead of bad debt recovery.
5. Lack of signed contracts for services and sponsorships
6. Payments made prior to completion of milestones
7. Incomplete disclosures related to party transactions.
8. Revisions to new capitalization policy. The Authority’s current policy does not contain requirements for asset identification numbers and regular verification of the register’s contents.
9. Inconsistency in estimated useful lives. The Authority’s financial statements estimate the useful lives of equipment at 3-5 years whereas the Authority’s Master Financial Policy for depreciation is 5 years.
10.  The former CEO of the Authority referred to it as a private sector organization in June 2016 Board minutes. The Authority is, in fact, a Public Authority.
11. In camera sessions of Board meetings. 12 of the 13 Board minutes for the year include in-camera sessions which are not recorded in the minutes.
12.  The Audit and Risk Committee minutes of September 2016 confirmed that the Committee would meet every quarter. However, there were no meetings held for neither the last quarter of 2016 nor the first quarter of 2017.
13.  Declaration of Interests by employees and potential employees. The Authority did not provide a response on whether they had received any declarations of interests from any employees and how this requirement is communicated to its employees.

Mr. Speaker, in response to the aforementioned items, the Auditor General submitted the following recommendations:

• For those charged with governance to perform their role in a responsible manner, minimally the Executive Management, bonus eligibility should be reviewed and approved. Accordingly, the Board should update its Governance Charter to ensure that there is proper oversight and review of incentive bonuses particularly, the Executive Management team.

• Given the discretionary nature of the incentive bonus awarded to the former CEO, the Board or the Compensation and Remuneration Committee should approve the bonus percentage awarded to the former CEO and document such approval in its minutes.

• The Board should ensure that the minutes of all meetings, including in- camera sessions are documented.

• Although the Authority has its own financial policies, the Government’s Financial Instructions should form the minimum standard for financial controls in every QUANGO.

• The Audit and Risk Committee should comply with its policy.

• Management should:

• Follow its compensation philosophy and ensure the timely completion of the signed performance appraisals.  Moreover, the Compensation and Remuneration Committee should notbe approving the incentive bonuses prior to receipt of the completed performance appraisal forms.
• Correct misstatements in a timely manner.
• Ensure contracts are timely signed to manage any potential contract risk to the Authority.
• Ensure that the contract provisions are met prior to making any payments.
• Ensure compliance with all relevant disclosure requirements of Public Sector Accounting Standards, PSAS, when preparing its financial statements.
• Review and amend, if necessary, its depreciation policy, to ensure that it is implemented consistently.
• Comply with all the requirements of its Act.

Mr. Speaker, these observations do not highlight all points or suggestions for improvements to the system of internal control.  It does, however, isolate problem areas so that corrective measures can be undertaken.  I can report that the Bermuda Tourism Authority has acknowledged the issues raised in the report and have begun to implement these recommendations.

However, it is unfortunate that such measures had to be identified through the audit process for actions to be undertaken to improve the level of transparency within this organization.

Mr. Speaker, as Minister responsible for Tourism, I am obligated, to increase the accountability of the Bermuda Tourism Authority, develop a process for better monitoring the funds utilized by the BTA, while demanding a greater return on our investment.  The findings of this audit are unacceptable and I will be monitoring the BTA closely to ensure higher standards of transparency and accountability from the organization.

To this end, my Ministry will be reviewing the updates relating to the items identified in this report and I will keep this Honourable House updated accordingly.

Thank you, Mr. Speaker.

Update 3.04pm: In response, the BTA Board of Directors Audit Committee said, “The exchange of opinions and interpretations, and the provision of recommendations for improvement, which the Minister referenced today, is a normal and healthy part of the dialog between auditor, management and the audit committee of a board.

“For example, it’s the view of the Bermuda Tourism Authority Board, and many other boards, that it is a necessary part of good governance for directors to regularly allocate time for an in-camera discussion towards the end of each scheduled and properly minuted board meeting.

“These discussions are typically used to discuss sensitive issues like those surrounding HR or other matters that legally require confidentiality. In 2016, for the BTA Board, the majority of these sessions focused on the identity of applicants for the CEO search and board deliberations about those candidates.

“An early draft of the Auditor General’s observations which was cited today includes misstatements of fact that were subsequently either removed by the Auditor General or corrected. For example, the former BTA CEO’s contractual incentive was approved by the Board, contrary to what was said today in Parliament.

“The recommendations of the Auditor General should not distract from the fact that 2016 marks the third consecutive unqualified audit of the Bermuda Tourism Authority, for which the Auditor General issued the following opinion, “As required by Section 20 of the Bermuda Tourism Authority Act 2013, I also report that, in my opinion, proper accounting and supporting records have been kept and that the receipt, expenditure and investment of moneys and the acquisition and disposal of assets by the Bermuda Tourism Authority during the year ended December 31, 2016, have been in accordance with the provisions of the Bermuda Tourism Authority Act 2013.”

“Among Government entities, quangos and independent authorities the Bermuda Tourism Authority sets a standard for fiscal responsibility, accountability and transparency that the public can be proud of:

• Three consecutive years of unqualified audits from the Auditor General
• The BTA puts financial prudence, transparency and ROI at the heart of everything it does
• The BTA ROI on government funding is 15:1
• The BTA implemented PATI-era transparency before it was mandated legislatively
• The BTA is accountable to Parliament, the Ombudsman, the Auditor General and the Public Accounts Committee, where it has answered questions from Members of Parliament in a public forum

“The Bermuda Tourism Authority is always open to ideas on what it can do better, and looks to all stakeholders for constructive input. The BTA’s Audited Financials are legally required to be laid in Parliament by the Minister before they can be publicly posted. Once the 2016 Audited Financials are laid before Parliament, they will be made available for public scrutiny on gotobermuda.com/bta.”

Update 6.24am: This evening Minister Simmons is “further clarifying his commitment to ensuring standards of openness and transparency.”

Minister Simmons said, “Presented in Parliament this morning are the summary findings of the Auditor General’s report. BTA is aware of the findings sent from the Office of the Auditor General on July 11, 2017 and are actively working to remedy the same as I noted in mentioned in my Statement.

“As I stated it is our responsibility to increase the accountability of the Bermuda Tourism Authority, develop a process for better monitoring the funds utilized by the BTA, while demanding a greater return on our investment.

“I consider it a matter of great seriousness and urgency that every entity under my Ministerial purview operates at the highest standards of openness, accountability and transparency. Anything less will not be tolerated. The people of Bermuda deserve nothing less.”

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