REPORT: VIP handled finances poorly in 2011

By Horace Mills, BVI News Online Staff

The Auditor General’s Department has cast a bad light on the former Virgin Islands Party (VIP) government over its handling of the territory’s financial affairs in 2011 – a year that ended with concerns about possible irregularities, revenue shortfall of more than $400,000, and outstanding bills of over $5.6 million.

Details of the concerns are contained in a report prepared by then Auditor General Sonia Webster, and tabled in the House of Assembly a few days ago.

The 2011 report covers a defining moment in the British Virgin Islands’ history – a year that ended with the then VIP government headed by Ralph T O’Neal being voted out of office in the general election on November 7.

The National Democratic Party assumed leadership of the territory’s affairs at the turn of the year and, at the time, accused the VIP of leaving the territory broke.

The VIP repeatedly denied that assertion.

According to the Auditor General, the public debt at the end of 2011 stood at $116,807,696, and the Reserve Fund had a balance of $7,446,751. The Consolidated Fund had a balance of $66,828,117.

Revenue Collection Crisis

The Auditor General, in looking at the recurrent revenue for the year 2011, stated that the amount budgeted was $284,884,000.

The amount actually raked in shows a shortfall of $404,474 or less than one percent of the budget.

What is however telling is the fact that, of the 11 revenue sources categorized, nine recorded shortfalls.

Financial Services and Rental were the only two categories that performed as expected or – in fact – far above expectations.

Those two areas realized total excess revenue of just over $14.2 million – an amount that was used to help offset the shortfall in other areas.

But that excess revenue from Financial Services and Rental was “not sufficient to offset” the total shortfall in the other revenue areas, according to the Auditor General.

As a result, the year ended with recurrent revenue being $404,474 less than budgeted.

Room for irregularities

The Auditor General, in further examining the Government revenues, noted that the collection process was not adequately safeguarded.

“On site inspection of revenue collecting offices revealed cases where internal controls were insufficient to safeguard the collection process. This opened the door to irregularities in collection activity,” the Auditor General said, adding that some departments were ‘tardy’ in reporting revenues to the Treasury.

The Auditor General also noted certain requirements under the Public Finance Management Regulation 2005. Under that regulation, an Accounting Officer responsible for collecting revenue is required to submit to the Accountant General: an annual return of arrears, and a monthly report of arrears of revenue recovered.

According to the Auditor General, that regulation was ‘widely disregarded in the public service”.

Reallocation Warrants

Meanwhile, the Auditor General’s report also raised concern about another important area of finance – Re-allocation Warrants.

Re-allocation Warrants effectively allow departments and ministries to transfer funds from a subhead with savings to another that has insufficient funds in order to allow the latter to meet authorized expenditure.

In the year 2011, the then VIP government approved 240 Reallocation Warrants for transfer of just over $5.7 million.

Under the Finance Management Act 2004, the then Minister of Finance Ralph T O’Neal was required to table the Reallocation Warrants in the House of Assembly within six months after the end of the year to which the Re-allocations relate.

“There is no evidence that this was done in respect of the 2011 Re-allocations,” said the Auditor General.

Outstanding Bills

Furthermore, under the Public Finance Management Regulation, the Financial Secretary is allowed to carry forward bills from one year into another year.

The Auditor General noted that the provision was mainly to cover bills accrued in December.

But, according to her, a bad practice has developed.

The Auditor General explained: “The practice was developed whereby departments and ministries hold over invoices and receipts until the subsequent year, because they have exhausted their expenditure budgets. For some departments, this may run into the hundreds of thousands of dollars.”

“The Ministry of Finance routinely facilitates payment of these wrongfully held over-charges and, in so doing, has embedded a practice of poor financial management which circumvents legalised procedures,” added the Auditor General.

In relation to the year 2011, she stated that a grand total of $5,601,318 was carried forward to the following year.

The Auditor General noted that the Water and Sewerage Department carried forward 56.5 percent of the grand total stated immediately above. “These consisted primarily of electricity bills for the desalination plant – some of which were more than six months old,” she noted.

The BVI International Finance Centre carried forward into 2012, bills totaling $795,471. “This included Consultancy costs of $547,472.07 which would be applied to the 2012 budgeted amount for that subhead of $547,472.07 which would be applied to the 2012 budgeted amount for that subhead of $546,800, thereby immediately depleting that year’s allotment,” said the Auditor General.

She, after outlining the aforementioned figures, declared that they required more than cursory approval.

“The significance of these amounts require more than a cursory approval under a regulation that was not intended for this purpose. These should be addressed through the supplement approval process, which requires that the amounts are reviewed and approved by the House of Assembly, thereby adjusting the budget for the year under review,” added the Auditor General.

VIP wasted public resources on private property