BVI Treasury Department Audit

Forensic Services

Government of the British Virgin Islands Treasury Department Forensic Examination Report

Strictly private and confidential

Final

22 March 2013

PwC

22 March 2013 Confidential Information for the sole benefit and use of PwC’s Client.

Final

Brian Hackett Partner T: +1 868 299 0700 (ext 4009) M: +1 868 392 7922 [email protected]

Kofi Boxill Director T: +1 868 299 0700 (ext 4026) M: +1 868 391 3333 [email protected]

David Thompson Director T: +1 441 299 7656 M: +1 441 535 7656 [email protected]

Government of the Virgin Islands Ministry of Finance Central Administrative Complex Road Town Tortola

Dear Mr. Gaskin, Subject: Forensic Examination of the financials of the Treasury Department of the Government of the Virgin Islands We are pleased to report on our findings regarding the Forensic Examination of the financials of the Treasury Department of the Government of the British Virgin Islands (the “BVIGOV”) in accordance with our contract dated 27 September 2012 .

Enclosed herein is our final report. Save as described in the contract or as expressly agreed by us in writing we accept no liability (including for negligence) to anyone else or for any other purpose in connection with this report, and this report may not be distributed to any parties other than members of Cabinet of the BVIGOV without our expressed written consent.

We would like to place on record our appreciation to you and the staff of the BVI Treasury Department and Ministry of Finance for the hospitality, courtesy and assistance afforded to our team during the course of its work.

Yours faithfully,

Brian Hackett Managing Director

2

Government of the BVI Treasury Department

Glossary Appendices Supporting information Executive report At a glance – our views

Table of Contents

1 Financial Reporting Process 13

2 Quality and Accuracy of Financial Reporting 14

3 Restated Net Fiscal Position 18

4 Debt Obligations 20

5 Evolution of Net Fiscal Position 22

6 Examination of Major Contracts 24

7 High-Level Assessment of Treasury Operations 37

7.1 Recommendations and Suggested Next Steps 48

8 Proforma Statement of Affairs 55

9 Compliance with Protocols for Effective Financial Management 60

1 Reported Assets & Liabilities 65

2 Reported Income and Expenditure 82

3 Recurrent Revenue Analysis 84

Page

Table of Contents

4 Recurrent Expenditure Analysis 86

5 FY2011 Abstract Statement 89

6 Year-end Commitments / Unrecorded Liabilities 90

7 Litigation Listing 91

8 Major Contracts awarded in FY2011 92

9 Listing of Contract Payments 94

10 Outstanding Audit Requests 95

Page

PwC


Final

Summary of Engagement Background

Engagement Background

The Government of the (British) Virgin Islands issued a Request for Proposal for the conduct of a forensic examination on the financials of BVI’s Treasury Department (“the Treasury ”). The examination was primarily requested to obtain additional insight into the fiscal standing of the BVIGOV.

Additionally, the Ministry of Finance required an examination of potential abnormal activities and irregularities regarding the award of contracts at values that exceeded $100,000 prior to the election of the new government in November 2011.

The Treasury Department falls under the Ministry of Finance and is headed by the Accountant General. The Accountant General is responsible for the accounting of public monies and reporting on the Government’s accounts as set out in statutory instruments of the Constitution, Public Finance Management Act and Regulations, financial circulars, and financial instructions issued by the Ministry of Finance and Financial Secretary.

On 27 September 2012 the BVIGOV engaged PricewaterhouseCoopers Advisory Services Limited (“PwC” or “PwC Trinidad”) to conduct the forensic examination of the financials prepared by the Treasury Department, and to review the award of certain Major Contracts during 2011, with a focus on the specific areas outlined at right.

Scope of Examination

The scope of the Treasury examination included and was limited to the following (as summarized):

1. Examination of the financial statements prepared by BVI Treasury for the 2008 through 2011 fiscal years to assess the fiscal status of BVIGOV’s accounts as at December 2011, and to understand how this fiscal status evolved;

2. Examination of the bank statement cash balances at December 2010 and 2011 to compare and verify these amounts to the balances reported by BVI Treasury, and to identify any irregular activity;

3. Review of the Major Contracts (greater than $100,000) entered into by the BVIGOV between January 1 and December 31 2011 with a focus on compliance with approved procurement policies; analysis of amounts spent by BVIGOV against these contracts; and any other irregularities identified;

4. Examination of the purpose, nature, and authority for all cash transactions that exceeded $100,000 between January 1 and December 31 2011 including compliance with required payment approval procedures;

5. Conduct of a high-level assessment of the overall BVI Treasury operations with a focus on key internal controls and financial reporting procedures.

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PwC


Final

Summary of Engagement Scope

Our scope Our work was focused on and limited to analysis of the historical results for the four (4) years ended 31 December 2011 and the net asset position of the BVIGOV as at December 2011; analysis of bank statement cash balances and reconciliations as at December 2010 and 2011; examination of the process of award and review of the Major Contracts entered into by the BVIGOV between January 1 and December 31 2011; examination of the purpose, nature and authority for all cash transactions that exceeded $100,000 during 2011; and a high-level assessment of the overall BVI Treasury operations and certain key internal controls.

Our scope did not include, and we did not perform, a financial statement audit in accordance with International Auditing Standards where an opinion is rendered as to whether the accounts are fairly stated in accordance with a specific international financial reporting standard. The Auditor General of the BVIGOV performs this function. Further details of our scope limitations and restrictions are presented on the next page and throughout our report where appropriate.

Limited Extensive

Access to management Our access to management was good while onsite in the BVI. We held meetings with the Acting Accountant General, Accounting Manager, and other personnel within the Treasury Department. We also met and held discussions with the Auditor General, Acting Director of Internal Audit, Manager – Procurement Unit, various Ministry of Finance personnel, as well as a representative from the Attorney General’s office.

None Good

Access to information Overall, the information provided has given us a reasonable basis to execute our scope of procedures. However, certain information has not been provided in a timely manner and remains outstanding as at the date of this report. This information is included in the Appendices.

Limited Extensive

Clarity of information The information provided, together with our access to management, has allowed us to gain insight and understanding of the fiscal status and procurement practices of the BVIGOV, as well as high-level understanding of the operations of the Treasury Department. However, weaknesses in the quality of the financial information provided; challenges with the extraction of payment information from the JD Edwards system in the form we requested, and the non-centralized retention of certain records adversely affected the clarity of some of the information provided.

Poor Good

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PwC


Final

Scope Limitations and Restrictions

7


General

We have set out in this report the scope of examination procedures undertaken by us and our findings thereon. Our examination did not constitute an audit where an opinion is rendered as to the accuracy of the financial information presented, as defined by International Financial Reporting Standards (“IFRS”). We have not attempted to audit or otherwise verify the information presented to us beyond the expressed scope of services and related procedures stated in this report. We have not sought external verification of the information provided to us except as expressly stated herein.

Our work was conducted over a fourteen (14) week period ended 17 January 2013. Should further information come to our attention, the results and conclusions expressed herein could change. This report must be considered in its entirety by the reader, as selecting and relying on only specific portions of the analyses of factors considered by us, without considering all factors and analyses together, could create a misleading view of the processes underlying the analysis. It is not appropriate to extract partial analyses or make summary descriptions of the report and any attempt to do so could lead to undue emphasis on a particular factor or analysis.

Our report is not intended for general circulation or publication, nor is it to be reproduced or used for any purpose other than that outlined in our engagement letter, without our prior written consent in each specific instance. We will not assume any responsibility or liability for losses occasioned to you as a result of the circulation, publication, reproduction or use of our report contrary to the provisions of this paragraph.

Scope of work and examination of records

1. Due to the limited scope and time constraints involved in completing our work, this report has not considered all areas which might be relevant to you. We have identified those areas where we consider further investigation would be required to deliver more detailed findings.

2. The scope of our work was limited to a review of documentary evidence made available to us. We have not verified the authenticity or validity of the records and documents made available to us unless otherwise stated. Our work was based on limited procedures which may not necessarily identify all items which should be brought to your attention, and the period of focus as requested by you was the twelve months ended December 2011.

3. We cannot guarantee that we have had sight of all relevant documentation that may be in existence and therefore cannot comment on the completeness of the documentation made available to us. Any documentation or information brought to our attention subsequent to the date of this report, which would affect our findings detailed herein, may require our findings to be adjusted and qualified accordingly.

4. Although we have conducted a review of certain Major Contract procurement practices our scope also did not include an investigation of the quality of work or Value for Money derived from any of the Major Contracts or a background investigation of the contractors.


PwC


Final

At a glance – our views The BVIGOV has serious deficiencies with the timeliness and accuracy of financial information prepared for decision making, and with the adequacy of procurement practices for Major Contracts. Urgent remedial action is immediately required to present fiscal results that accurately reflect the economic reality of the net fiscal position of the BVI; to address the decline in the net fiscal status, and to minimize potential mis-management of public funds. ! Timeliness of Financial

Reporting

The timeline for finalization and reporting the BVIGOV’s annual accounts has taken 14 to 17 months for the last three (3) fiscal years (see table below).

This lengthy process for submission of final accounts to the FS and the Minister of Finance does not facilitate informed financial and strategic decision making, including allocation of scarce resources.

Best practice for submission of final audited accounts to facilitate proper public sector financial management is three (3) to four (4) months after year-end.

@ Accuracy of Reported Net Fiscal Position

The reported Statement of Assets and Liabilities do not provide an accurate presentation of the economic reality of the BVIGOV’s fiscal position.

Significant account balances (such as the Fund or Reserve balances) are incorrectly presented; and material obligations including public debt, year-end commitments, guarantees, and pending litigation liabilities, are either omitted entirely or not presented on the face of the Statements.

An estimated restatement of the FY2011 Statement below illustrates that the BVIGOV’s net fiscal deficit equalled approx. $(75) million, excluding the value of fixed assets and contingent liabilities.

8


# Major factors contributing to decline in Net Fiscal Position

Our analysis of the historical financial statements and supporting detail indicated a significant decline in the BVIGOV’s restated estimated net fiscal position from $4.8 million at December 2008 to $(75.5) million at 2011, excluding the value of fixed assets. This decline was primarily due to :

• Increased Public Debt by $41 million (net);

• Development expenditure that exceeded the contributions for this expenditure from the Consolidated Fund by $25.6 million in aggregate for 2009, 2010, and 2011; and

• A reduction in the operating surplus in 2009 and 2010 as revenues declined given the global economic challenges in 2008 and 2009.

Financial Year-End

Submission of accounts to Auditor General

Financial Statements completed in final form

Duration since year-end

Dec 2008 1 May 2009 15 February 2010

14 months

Dec 2009 1 May 2010 12 May 2011 17 months

Dec 2010 25 July 2011 1 May 2012 17 months

Dec 2011 24 April 2012 Not certified to date

> 11 months

Restated Estimated Assets & Liabilities: 2008 to 2011

Dec-08 Dec-09 Dec-10 Dec-11

US$ Proforma Proforma Proforma Proforma

Assets - as reported

Total Assets per Financial Statements 85,124,378 49,164,877 44,282,816 57,462,309

Liabilities - as reported

Total Liabilities per Financial Statements (29,308,353) (19,191,023) (21,493,867) (23,220,828)

Total Net Assets / Fund Reserves - As Reported 55,816,025 29,973,854 22,788,949 34,241,481

Total proforma adjustments (51,055,609) (122,242,069) (116,364,029) (109,759,232)

Net Proforma Fiscal Position [(Deficit)/Surplus] 4,760,416 (92,268,215) (93,575,080) (75,517,751)

Contingent Liabilites

Loan Guarantees (28,191,949) (23,491,717) (23,140,726) (21,306,990)

Source: PwC Analysis, Management Information Source: PwC Analysis, Management Information Source: PwC Analysis, Management Information

Time Taken to Submit Final Audited Accounts

Reported vs Restated Statement of Assets and Liabilities

Reported Restated/Proforma

Dec-11 Dec-11

US$ Unaudited Unaudited

Assets

Cash and cash equivalents 51,551,979 51,551,979

Advances and current accounts 5,910,330 11,343,599

Property, plant and equipment NQ NQ

Total Assets (Excluding Fixed Assets) 57,462,309 62,895,578

Liabilities

Other Deposits (23,220,828) (15,742,360)

Total Public Debt Excluded (113,473,556)

Estimated Year-end Commitments Excluded (7,411,139)

Estimated Pending Litigation Liability Excluded (1,786,274)

Total Liabilities (23,220,828) (138,413,329)

Net Assets / (Liabilities) 34,241,481 (75,517,751)


PwC


Final

At a glance – our views (continued)

The BVIGOV has serious deficiencies with the timeliness and accuracy of financial information prepared for decision making, and with the adequacy of procurement practices for Major Contracts. Urgent remedial action is immediately required to present fiscal results that accurately reflect the economic reality of the net fiscal position of the BVI; to address the decline in the net fiscal status, and to minimize potential mis-management of public funds. ^ High-Level Review of

Treasury Operations

Our overall assessment of the current status of the Treasury operations, based upon our high-level review, is that it falls within the lower end of the maturity scale of what represents poor and good practice, as indicated in the table below.

Significant improvement in all of the key areas for effective Treasury management is required particularly regarding relevance of the department as a source of support for financial and strategic decision making, the development of internal resources, and risk management particularly regarding controls over the collection of cash by revenue generating state entities. See Section 7 for further detail.

Maturity of the Treasury Department

% Additional Major Contract Issues Identified

A number of additional concerns and control weaknesses were identified during our examination of Major Contract awards in 2011, and the process for issuing payments on these contracts, including but not limited to:

i. Non-acceptance of the recommendation of the Public Tenders Committee for one of the three contracts that were publicly tendered during 2011;

ii. Award of Major Contracts that were not included in the budgeted estimates or Supplementary Appropriation Provisions for 2011;

iii. Contracts signed prior to the date of approval by Cabinet;

iv. Splitting of contracts to several vendors;

v. Payments in excess of $100,000 to vendors where no contracts for these vendors were included in the Major Contracts listings for 2009, 2010, and 2011;

vi. Payments on contracts with no evidence of proper approval via a Payment Approval Form; and

vii. The unavailability of key documents that should be retained for the contracts that were publicly tendered by the Procurement Unit.

9


$ Procurement process for award of Major Contracts

We identified an increasing trend of the award of Major Contracts over the last four years via Cabinet waiver of the public tendering process and sole source selection of suppliers. As illustrated in the table below, there has been a steady decline in the number of contracts awarded via public tender while the total contract amounts have increased.

BVI legislation provides Cabinet with the authority to select suppliers on a sole source basis. However, we observed that there was no documented basis or rationale for waiving the public tendering process in the Cabinet minutes provided for any of the contracts awarded on sole select basis in 2011, including a $30.8 million contract signed in November 2011.

2008 2009 2010 2011

Total No. of Major Contracts

16 24 34 27

Total Major Contracts Amount

$6.1M $16.3M $18.2M $46.4M

No. Of Major Contracts Tendered Publically

15 10 5 3

Source: PwC Analysis, Management Information Source: PwC Analysis, Management Information

Major Contracts Awarded via Public Tender


PwC


Final

At a glance –Summary of Recommendations: The BVI Government should respond to the issues identified in this report as an urgent priority and put in place, and deliver on, an action plan to remedy and improve the current situation.

PwC view: Remedial actions to correct accounting issues and quality of financial reporting, strengthening procurement controls over Major Contracts, and improvement of the overall Treasury operations are critically required. Immediate actions and a longer term performance improvement plan should result in noticeable improvements.

As noted herein there is a great deal of work to be completed if the Treasury Department is to become a high performing unit. We have summarized some key recommendations below into immediate, short and medium term remedial actions. In our view, and given the constraints of the department’s daily requirements, these actions are achievable but will require prioritization, and technical support to accomplish in a timely manner.

We recommend that a small intervention team be mobilized to work with the Accountant General for a specified period of time with the objective of taking forward the above actions in the form of a Project Management Office (PMO). Immediate Actions

1. Strictly enforce a monthly accounting timetable, including protocols for proactive resolution of issues between the Accountant General and Auditor General under instruction from the FS, to ensure audited accounts are published within 3 to 4 months after year-end

2. Consider amendment of relevant legislation (such as the Audit Act) to mandate the completion and submission of audited accounts to the FS and Minister of Finance within 3 to 4 months

3. Conduct a detailed investigation and reconciliation exercise to adjust, reclassify, and/or eliminate all unsubstantiated or incorrect asset, liability, and Fund balances for the 2010, 2011, and 2012 accounts.

4. Ensure that public debt, year-end commitments, and contingent liabilities (where applicable) are reported on the face of the Statements of Assets & Liabilities as at December 2012

Immediate Actions (continued)

5. Conduct quarterly reviews of the viability and internal net cash flows of all state entities with loans guaranteed by the BVIGOV, and include this review in a redesigned quarterly management accounting package for submission to the FS.

6. Complete a detailed review of key internal controls such as safeguarding of revenue/cash collections, and implement a policy of conducting daily reconciliations of cash revenue collected vs bank deposits at all revenue collection agencies. These reconciliations should be conducted by or reviewed by Treasury personnel.

7. Implement and enforce a policy that all cash revenue collections should be deposited in the bank within 24 hours

8. Implement policies to strengthen controls over the award of Major Contracts including introduction of a clear basis or rationale for the award of contracts without public tender by Cabinet. Consider amending the relevant legislation to mandate this clear basis under which Cabinet may award contracts on a sole source basis.

9. Implement actions to strengthen controls over the authorization of payments on all Major Contracts, and contract monitoring and management including authority for signing of contracts, as well as coding of all payments in JDE with the contract no to ensure that the payment amounts can be compared against the contract amounts in the system and not only on a manual basis .

10. Conduct forensic investigations into the facts and circumstances surrounding the award of contracts for construction of the new Peebles Hospital; the Installation of Closed Circuit Television, and unallocated costs on the North-South and Anegada road projects.

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PwC


Final

At a glance –Summary of Recommendations: The BVI Government should respond to the issues identified in this report as an urgent priority and put in place, and deliver on, an action plan to remedy and improve the current situation.

PwC view: Correcting the accounting issues and quality of financial reporting, strengthening procurement controls over Major Contracts, and improvement of the overall Treasury operations are critically required. Immediate actions and a longer term performance improvement plan should result in noticeable improvements.

Short-Term Actions (completion within 3 to 6 months)

11. Assign adequate, trained resources to the Procurement Unit given the increase in the number of Major Contracts awarded annually

12. Assign adequate resources to complete the exercise to identify and value all fixed assets owned by the BVIGOV, and include same on the revised Statement of Assets & Liabilities

13. Issue instructions to the Procurement Unit to improve the retention of all required tender documents to ensure evidence of a transparent process exists

14. Prepare a Financial Instructions Manual, circulate and train all staff with finance related responsibilities within government

15. Continue strict implementation of revised budgetary control planning and monitoring procedures, particularly with respect to development expenditure

16. Develop and implement a financial monthly and quarterly reporting package with key management metrics including a financial scorecard, supporting narrative for major variances etc, as well as robust account balances under a commitment accounting approach. [Such a package will also assist with a reduction of the time taken complete final year-end accounts as only the final quarter should require detailed work to complete]

17. Prepare a documented workplan and methodology for the transition to accrual based accounting, after Treasury personnel are properly trained and knowledge has been transferred by the proposed outsourced accounting team / Project Management Office.

Medium Term Actions (completed within 6 to 9 months)

18. Complete the Treasury Department Organizational Review

19. Prepare a Treasury Department Business Plan

20. Complete the Training Needs Analysis for all Treasury staff, and provision of the necessary time off work to obtain proper accounting training and qualifications

21. Prepare a documented methodology and/or accounting manual for the completion of quarterly and year end accounts under accrual based accounting

Further details of each of these suggested improvement actions are included in Recommendations Section of this report, and the related issue/findings are included throughout the Executive Report section and Supporting Information.

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PwC


Final

Executive report

12


Executive report 12

1 Financial Reporting Process 13

2 Quality and Accuracy of Financial Reporting 14

3 Restated Net Fiscal Position 18

4 Debt Obligations 20

5 Evolution of Net Fiscal Position 22

6 Examination of Major Contracts 24




PwC


Final

Quality of Financial reporting– The BVIGOV financial statements are not completed in a timely manner and cannot properly inform financial and strategic decision making including formulation of budgets.

PwC view – The process for completion and submission of annual financial statements to the Minister of Finance (the current Premier) has taken 14 to 17 months for the last three (3) fiscal years. This process requires urgent remedial action to support the Government’s initiative to improve Public Sector Financial Management.

13


1 Financial Reporting Process

Financial Reporting Process

The Public Finance Management Act 2004 (Section 35) dictates that “The Accountant General shall, within four months after the end of a financial year or such longer period as the Minister may approve in writing, transmit to the Auditor General accounts showing the financial position of the Legislative Council and all Government departments and offices, including the Public Service Commission, at the end of that financial year”.

During our investigation, we noted that the Accountant General (Acting) typically submits draft accounts to the Auditor General within the four month window after year-end (except for the 2010 accounts which were not submitted until July 2011 as indicated in the table at right).

However, the Auditor General responds with several queries on the draft accounts and various correspondence is shared back and forth between the Accountant General and the Auditor General that take several months to resolve.

A number of adjustments to the draft accounts are often required before the accounts can be finalized, certified as audited, and submitted to the Financial Secretary (FS) and Minister of Finance.

The table below indicates the actual timeline noted for submission and finalization of the BVIGOV’s Financial Statements over the last four years:

The Public Finance Management Act 2004 and the Audit Act 2003 do not provide a specific timeline under which the Auditor General must complete the audit of the accounts and issuance of an opinion. This open-ended timeline does not allow for the execution of an efficient audit process and is a likely contributor to the long delays.

The audited financial statements are then included in an Annual Report on the Accounts. This Report is compiled by the Accountant General’s office and includes the Accountant General’s commentary as well as the statements certified by the Auditor General.

The latest available Annual Report (as at the date of our report) is for the 2009 fiscal year as preparation of the 2010 annual report is still in progress, and the 2011 report has not yet commenced because the financial statements were not yet finalized.

Financial Year-End

Submission of accounts to Auditor General

* Financial Statements completed in final form

Duration since year-end

December 2008 1 May 2009 15 February 2010 14 months

December 2009 1 May 2010 12 May 2011 17 months

December 2010 25 July 2011 1 May 2012 17 months

December 2011 24 April 2012 Not certified to date > 11 months

* Certified by the Auditor General


PwC


Final 14


2 Quality and Accuracy of Financial Reporting

Quality of Financial Reporting

Reported Statement of Assets and Liabilities

The current method of accounting used by the Treasury Department of the BVIGOV is a hybrid of cash and accrual accounting. The Abstract Statements which present income and expenditure items represent cash inflows and outflows, except for the transfers to various funds. See Appendices for a replica of the FY2011 Abstract Statements. The Statement of Assets and Liabilities as at December 2011 is replicated in the table at left - in the actual form that it is submitted to the Auditor General for certification, and submitted to the FS in draft.

This Statement at left, which should present the net fiscal position of the BVIGOV is inadequate and misleading. The Statement presents $51.6 million in cash and cash equivalents as the major asset, as well as certain advances amounting to $5.9 million as at December 2011. The total liabilities, which are a mixture of cash and accrued items, equal $23.2 million and the Fund balances include a Consolidated Fund amount of $62.6 million.

However, during our analysis we noted that all of the Fund balances except the Reserve Fund are based on a mixture of budgeted and not actual amounts and/or balances that are not updated so that they can be agreed to actual cash balances. These Fund balances are not reconciled to reflect the result of actual transfers in and expenditure from these Funds. There is also no reconciliation to actual cash available for expenditure from these funds. The $66.8M Consolidated Fund balance presented (for example) is grossly overstated when compared to the actual cash available for expenditure from this Fund. We also identified inaccuracies within the Advances and liability balances, and significant Government obligations and commitments at year-end are omitted from this Statement. Therefore, the Statements misrepresent the BVIGOV’s net fiscal position and economic reality.

Quality of Financial Reporting – The reported Statements of Assets and Liabilities are misleading and therefore cannot present a fair statement of the economic reality of the BVIGOV’s financial position

PwC view – Significant account balances are incorrectly presented and material obligations of the BVIGOV are either omitted entirely or not presented on the face of the Statement of Assets and Liabilities.

BVIGOV Statement of Assets and Liabilities as at December 2011 (Unaudited) - AS REPORTED

FUND BALANCES $ $ ASSETS $ $

Current Assets

Consolidated Fund Advances and Current Accounts

Balance B/F 62,202,763 Public Officers Advances 1,652,788

Surplus/Deficit 2011 4,625,354 Other Advances 3,833,185

66,828,117 Current Accounts 424,357

5,910,329

Other Funds Investments

Development Fund (56,050,117) Certificates of Deposits & Savings 35,882,286

Contingency 238,470 35,882,286

Emergency/Disaster Fund 3,669,312

Transportation Improv Fund 3,794,308

Car Loan Revolving Fund 715,086

Debt Service Fund 100,000

Loan Revolving Fund 100,000

Pension Fund 6,799,555

Repairs & Renewal 600,000

Reserve Fund 7,446,751

(32,586,636)

LIABILITIES Cash

Current Liabilities

Cash at Banks 15,669,693

Deposits 15,669,693

Postmaster (47,152)

Other Deposits 23,267,980

23,220,828

57,462,309 57,462,309

Note: This statement does not include the following:-

Public Debt as of 31st December 2011 amounting to US$113,473,556

Source: Unaudited Statement of Assets and Liabilities as at December 2011 - provided by the Treasury Department


PwC


Final

Accuracy of Reported Net Fiscal Position – Ten (10) of the eleven (11) reported Fund balances, which should represent amounts actually appropriated, transferred, and available for specific uses, were incorrectly reported over the FY2008 to FY2011 period.

PwC view – The sole account balances on the Statement of Assets and Liabilities that appeared to be fairly stated at December 2011 was Cash and Cash Equivalents at $51.6 million, Public Officers Advances of $1.7 million, and the Reserve Fund balance of $7.4 million.

15



The historical Statements of Assets and Liabilities are reformatted by the Auditor General in the form replicated in the table at left. The Auditor General’s Audit Certificate or opinion states that the accounts “present fairly the financial operations” of the Government except as otherwise stated and “subject to the comments, exceptions, and reservations contained therein”.

However, the inaccuracies and omissions noted during our investigation are significant and may be considered material. These errors and omissions result in a distorted presentation of the BVIGOV’s operations and fiscal position and are summarized below:

1. Fund balances: Fund balances do not represent actual amounts contributed to the Fund for the purpose the Fund was established. (such as Development Expenditure or Pensions). There are eleven (11) Funds and only one, the Reserve Fund, represented a year-end position that is the result of actual transfers to and expenditure from this Fund. The other Fund balances included in the Statement represent a mixture of budgeted amounts or amounts that have not been updated to reflect actual inflows and expenditures.

2. Fixed Assets: government-owned assets such as land and buildings have historically not been valued and included in the Statements. An exercise to identify and value these assets has been initiated but these amounts are not yet available, and significant work and resources are required to complete this exercise.

3. Advances & Current liabilities: various balances included in the Advances (i.e., accounts receivables) and current liabilities (Deposits) are not accurately accounted for or properly presented, and do not represent a true asset recoverable by the BVIGOV or a liability owed by the BVIGOV.

Financial Reporting Presentation and Accuracy

BVI Government Statement of Assets & Liabilities - As Reported


US$ Audited Audited Audited Unaudited

Assets

Cash and Cash Equivalents - As Reported

Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693

Certificates of Deposits and Savings 55,778,321 35,174,038 35,140,197 35,882,286

69,366,566 43,902,075 38,544,426 51,551,979

Advances and Current Accounts - Reported

Public Officers Advances 1,583,420 1,431,055 1,583,275 1,652,788

Other Advances 13,890,818 3,654,462 3,768,161 3,833,185

Current Accounts 283,574 177,285 386,954 424,357

15,757,812 5,262,802 5,738,390 5,910,330

Total Assets - As Reported 85,124,378 49,164,877 44,282,816 57,462,309

Liabilities

Deposits - As Reported

Postmaster Deposits 220,712 (6,963) (29,288) (47,152)

Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980

Total Liabilities - As Reported 29,308,353 19,191,023 21,493,867 23,220,828

Fund Balances - As Reported

Consolidated Fund 73,032,163 65,364,007 62,202,762 66,828,117

Development Fund (37,265,266) (56,311,797) (60,346,875) (56,050,117)

Emergency/Disaster Fund 4,382,776 4,384,325 4,067,355 3,669,312

Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751

Contingency Fund 200,000 200,000 200,000 238,470

Transportation Improvement Network Fund 1,669,213 2,477,357 2,757,149 3,794,308

Car Loan Revolving Fund 640,171 666,918 689,312 715,086

Debt Service Fund 100,000 100,000 100,000 100,000

Loan Revolving Fund 100,000 100,000 100,000 100,000

Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555

Repairs and Renewal 600,000 600,000 600,000 600,000

Total Fund Balances - As Reported 55,816,025 29,973,853 22,788,948 34,241,481

Total Liabilities and Fund Balances - As Reported 85,124,378 49,164,877 44,282,816 57,462,309

Source: Audited accounts for years ended 31 December 2008 to 2010, Unadited accounts for

year ended 31 December 2011 and Pw C Analysis


PwC


Final

Accuracy of Reported Net Fiscal Position – US $113.5 million in public debt as well as other significant obligations and commitments are not reported on the face of the Statement of Assets and Liabilities. Therefore, these obligations are not reflected in the presentation of the BVIGOV’s net fiscal position.

PwC view – The inclusion of public debt and other year-end commitments such as unpaid purchase orders or invoices, and pending litigation judgements provide a more realistic view of the BVIGOV’s net fiscal position and will enable more informed decision making.

16



4. Central Government Public Debt: US $113.5 million in public debt (as at December 2011) related to loans issued to the Central Government from various lending agencies are not presented on the face of the Statement of Assets and Liabilities. This debt info is presented as a footnote schedule in the Annual Report. [As stated previously, it is important to note that this Annual Report is not publicly available until more than a year after the fiscal period has ended.]

5. Commitments not yet paid: since the accounts are not presented on a “full” accrual basis various obligations that existed at the year-end, which were not paid by December 31, 2011, are not included in the Statements. These obligations or commitments include amounts owed to suppliers under purchase orders generated near to year end (such as in December) that are not paid until the following year.

6. Contingent Liabilities - Pending Litigation: Court judgements in favour of claimants against the Government are not included in the Statements or footnotes. Pending litigation against the Government that are quantifiable and the likelihood of success is probable are also not included.

7. Contingent Liabilities – Debt Guarantees: government guaranteed borrowing by state agencies such as the BVI Electricity Corporation, Development Bank of the VI, and the Scholarship Trust Fund Board, are not presented on the face of the Statements. These liabilities may not represent a direct obligation of the central Government but this potential exposure should be clearly presented, and the status of the debt and borrower should be actively monitored and mentioned. An assessment of contingent liabilities will be required to determine the probability of a liability crystallizing.

Financial Reporting Presentation and Accuracy (continued)




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

Actual Fund Balances Available– The reported Fund balances, except the Reserve Fund balance at December 2011, misrepresent the actual Fund cash balances available for Government expenditure. The actual Development Fund cash balances declined each year while the Reserve Fund cash balances were relatively flat and increased in 2011.

Fund Balances / Reserves

The table above illustrates the Reported vs. Actual (cash) Fund balances. These balances were determined by examining the year end reported Fund balances per the General Ledger (G/L) to the respective actual Bank Balances (operating and investment accounts created and associated to a specific Fund). As indicated, there were significant differences for each fund balance except for the Reserve Fund at December 2011.

As shown above, out of the eleven reported Funds, only the first four Funds have actual cash balances and bank accounts.. The other seven Fund Balances did not have any associated cash balances and Bank facilities to reconcile to their reported amounts, and no actual cash inflows or outflows. The Consolidated Fund and Development Fund in particular were significantly misstated and do not represent economic reality.

These G/L Fund balances are not updated regularly and reconciled to cash. Therefore, any cash to book differences as well as other irregularities or discrepancies within the Funds are not identified and adjusted in a timely manner. During further investigation we noted this issue dates back to several prior periods and a major contributor to the incorrect balances is that budgeted amounts (appropriated for contribution to and expenditure from these funds) are reported as actual inflows, outflows, and ending balances and not subsequently updated.

17



PwC view –The reported Fund balances are not reconciled to record actual transactions and cash balances, and budgeted contributions to Funds are reported as actual although no actual transfer occurred . The Reserve Fund balance of $7.4 million at December 2011 was the only Fund account that accurately represented resources available to the BVIGOV.

Reported Fund Balances versus Actual Bank Balances by Fund Type for the four (4) years ended 31 December 2008 to 31 December 2011

GL GL GL GL

Fund Type As Reported Bank Balance Difference As Reported Bank Balance Difference As Reported Bank Balance Difference As Reported Bank Balance Difference

Consolidated Fund 73,032,163 43,092,254 (29,939,909) 65,364,007 23,627,459 (41,736,548) 62,202,762 20,435,776 (41,766,986) 66,828,117 29,151,315 (37,676,802)

Development Fund (37,265,266) 21,780,191 59,045,457 (56,311,797) 15,667,872 71,979,669 (60,346,875) 14,093,499 74,440,374 (56,050,117) 12,660,054 68,710,171

Disaster/Emergency Fund 4,382,776 3,156,606 (1,226,170) 4,384,325 3,233,156 (1,151,169) 4,067,355 2,615,360 (1,451,995) 3,669,312 2,293,859 (1,375,453)

Reserve Fund 5,557,414 1,337,514 (4,219,900) 5,593,489 1,373,589 (4,219,900) 5,619,691 1,399,791 (4,219,900) 7,446,751 7,446,751 (0)

Pension Fund 6,799,555 - (6,799,555) 6,799,555 - (6,799,555) 6,799,555 - (6,799,555) 6,799,555 - (6,799,555)

Transportation Network

Improvement Fund1,669,213 - (1,669,213) 2,477,357 - (2,477,357) 2,757,149 - (2,757,149) 3,794,308 - (3,794,308)

Car Loan Revolving Fund 640,171 - (640,171) 666,918 - (666,918) 689,312 - (689,312) 715,086 - (715,086)

Repairs and Renewal Fund 600,000 - (600,000) 600,000 - (600,000) 600,000 - (600,000) 600,000 - (600,000)

Contingency Fund 200,000 - (200,000) 200,000 - (200,000) 200,000 - (200,000) 238,470 - (238,470)

Debt Service Fund 100,000 - (100,000) 100,000 - (100,000) 100,000 - (100,000) 100,000 - (100,000)

Loan Revolving Fund 100,000 - (100,000) 100,000 - (100,000) 100,000 - (100,000) 100,000 - (100,000)

Total Bank Balances 55,816,026 69,366,566 13,550,540 29,973,854 43,902,076 13,928,222 22,788,949 38,544,426 15,755,477 34,241,481 51,551,980 17,310,498

Source: Reported Statement of Assets and Liabilities, Management Bank and Fund analysis and PwC analysis



PwC


Final

Restated Net Fiscal Position (estimated) – Adjusting for the inaccuracies and omissions identified during our analysis resulted in a net fiscal position where total liabilities (excluding contingent debt) exceeded total assets (excluding fixed assets) by $75.5 million at December 2011.

PwC view – The Statement of Assets and Liabilities should be restated and/or adjusted to include public debt and year-end commitments in order to provide a meaningful representation of the BVIGOV’s fiscal status.

Restated Net Fiscal Position (Proforma Estimate)

We have compiled a Restated/Proforma Statement of Assets and Liabilities in order to present an estimated net asset/liability or net fiscal position that is more akin to economic reality (see table at left).

The Restatement is the result of adjustments for the aforementioned inaccuracies and omissions identified during our investigation. It is important to note that we did not conduct a financial statement audit in accordance with International Auditing Standards and the Restatement at left is not meant to capture and adjust for all issues or to present the BVIGOV’s accounts in accordance with International Reporting Standards.

However, we have examined the BVIGOV’s cash balances, Fund balances, debt and other and year-end obligations in detail. We also performed a high-level analysis of the other account balances such as Advances and Deposits. During this analysis we noted the following (in summary):

• The current assets and liabilities included certain misstatements that required reclassification or elimination, such as an insurance payable that was in a receivable position and cash received from an IPOC legal settlement that was incorrectly reported as a liability.

• Public debt, pending litigation (primarily judgments not yet paid), and year-end commitments amounting to $122 million have also been included as a liability in the Restatement.

The resulting net asset position equalled $(75.5) million as at December 2011 (excluding the value of fixed assets which is currently unknown) and contingent liabilities of $21.3 million. Details of our adjustments to derive the Restated position are provided in the “Supporting Information” section of this Report.

18


3 Restated Net Fiscal Position

BVI Government Statement of Assets & Liabilities (Reported vs Restated)

For the financial year ended 31 December 2011

Reported Restated/Proforma

Dec-11 Dec-11

US$ Unaudited Unaudited

Assets

Total Cash 51,551,979 51,551,979

Advances and Current Accounts

Public Officers Advances 1,652,788 1,652,788

Other Advances 3,833,185 9,219,302

Current Accounts 424,357 471,509

5,910,330 11,343,599

Fixed Assets

Property, Plant and Equipment NQ NQ

Total Assets (Excluding Fixed Assets) 57,462,309 62,895,578

Liabilities

Deposits

Other Deposits (23,220,828) (15,742,360)

Total Public Debt Excluded (113,473,556)

Estimated Year-end Commitments Excluded (7,411,139)

Estimated Pending Litigation Liability Excluded (1,786,274)

Total Liabilities (23,220,828) (138,413,329)

Net Assets / (Liabilities) 34,241,481 (75,517,751)

Source: Treasury Dept Unaudited 2011 Statements and Pw C Analysis

NQ - Not quantif ied


Loan Guarantees Excluded (21,306,990)


PwC


Final

Restated Net Fiscal Position (estimated) – The BVIGOV’s net fiscal status (on an adjusted/restated basis) declined from $4.8 million at December 2008 to $(75.5 million) at December 2011.

PwC view – The decline in the net fiscal position was primarily due to a significant increase in public debt in 2009 and historical fiscal deficits as development expenditure exceeded the operating surpluses available to fund this expenditure internally.

We have provided the estimated Adjusted/Proforma net asset statements on a restated basis over the four year period for comparative purposes in the table at left. This analysis indicated a steady decline in the cash held in the Consolidated Fund from 2008, until 2011 where an improvement in the trend was noted. In 2011 an operating surplus (net income before development expenditure) was generated while deficits occurred in the previous three years (see page 22 for details). The Reserve Fund was also increased in 2011 after a contribution was made to increase unallocated liquid assets given the significant debt obligations.

The decline in cash from 2008 to 2010 was largely due to deficit spending where development expenditure exceeded net operating income/surpluses. This excess expenditure was funded via incremental debt or use of savings in the form of Consolidated Fund balances.

Additionally, the BVIGOV raised $95 million in debt from Banco Popular and the BVI Social Security Board in 2008 and 2009. This debt was secured to finance construction of the New Peebles Hospital. This hospital is still under construction (5 years after work commenced), and the corresponding value of this asset is currently unknown and not reported.

Therefore, the significant decline in the BVIGOV’s restated/proforma net fiscal position from $4.8 million at December 2008 to $(75.5) million at December 2011 was primarily a result of:

• Increased Public Debt by $41 million (net);

• Development expenditure that exceeded the contributions for this expenditure from the Consolidated Fund by $25.6 million in aggregate for 2009, 2010, and 2011;

• A reduction in the operating surplus in 2009 and 2010 as revenues declined given the global economic decline in 2008 and 2009. Revenues did not recover to the 2008 levels until 2011. See page 22 for further details.

19


3 Restated Net Fiscal Position

NQ – Not Quantified (the value of fixed assets owned by the BVIGOV is currently unknown)

Restated / Proforma Statement of Assets & Liabilities

For the four (4) years ended 31 December 2008 to 31 December 2011



Assets

Cash and Cash Equivalents


Development Fund 21,780,191 15,667,872 14,093,499 12,660,054


Reserve Fund 1,337,514 1,373,589 1,399,791 7,446,751

69,366,565 43,902,076 38,544,426 51,551,979

Advances and Current Accounts


Other Advances 17,472,323 7,465,265 7,731,012 9,219,302


19,339,317 9,080,568 9,730,529 11,343,599

Fixed Assets

Property, Plant and Equipment NQ NQ NQ NQ

Total Assets (Excluding Fixed Assets) 88,705,882 52,982,644 48,274,955 62,895,578

Liabilities

Deposits

Postmaster Deposits (220,712) - - -

Other Deposits (9,757,410) (10,097,052) (12,574,269) (15,742,360)

(9,978,122) (10,097,052) (12,574,269) (15,742,360)

Total Public Debt (72,008,782) (134,251,314) (126,713,341) (113,473,556)

Estimated Year-end Commitments (1,958,564) (902,492) (2,562,425) (7,411,139)

Estimated Pending Litigation Liability NQ NQ NQ (1,786,274)

Total Liabilities (83,945,468) (145,250,858) (141,850,035) (138,413,329)

Proforma Net Assets (Estimated) 4,760,415 (92,268,214) (93,575,080) (75,517,751)


Loan Guarantees (28,191,949) (23,491,717) (23,140,726) (21,306,990)

Source: Audited accounts for years ended 31 December 2008 to 2010, Unadited accounts for year ended 31 December 2011

and Pw C Analysis


PwC


Final

PwC view – The BVIGOV secured $95 million in debt for construction of a new hospital in 2008 and 2009. $63 million was paid to the former contractor but a new $30.8 million contract was issued in 2011 (without public tender) to complete the project. This project should be investigated further given the significant fiscal impact of this expenditure and delay.

The BVIGOV’s net fiscal position changed significantly in 2009 after $95 million in debt was secured to construct the new Peebles Hospital. However, the construction has faced significant challenges and is still in progress five (5) years after construction commenced in 2007.

Construction was initially financed from the Consolidated Fund under a contract with the original developer (Carimex). However, this contract was discontinued prior to completion of the construction after several delays. This contractor was paid $62.9 million in total through 2009. We understand the reason for the ceasing of this contract has been disputed by the contractor. An assessment of whether any potential liability may arise from this dispute may be warranted if such an assessment has not yet been completed.

In November 2011, a $30.8 million contract and $4.1 million contract was awarded to James Todman Construction (without public tender) to complete the construction. $6.8 million and $2.5 million have been paid on these two contracts as at October 2012, respectively. We also noted variations to increase the $4.1 million contract by $275 thousand have already been approved in 2012.

We have commented further on the procurement of the latter contract later in this report. However, although our scope did not entail a forensic investigation of the hospital construction, the facts and circumstances surrounding this hospital project may warrant further investigation given the significant negative fiscal impact to the BVIGOV, and the fact that the project is still not complete after approximately 5 years and in excess of $70 million has been spent.

The lessons learned from such an investigation should be documented and debated, and procedures should be put in place to avoid a repeat of the issues identified on major capital projects going forward.

20


4 Debt Obligations

Government of the Virgin Islands

Statement of Public Debt

Loan Description Lender Dec-08 Dec-09 Dec-10 Dec-11

Fort Hill Water Project European Development Fund 164,627 125,041 110,960 101,602

East End Water Project European Development Fund 457,651 382,199 353,069 306,639

Hurricane Rehabilitation Caribbean Development Bank -

(Sea Defense) 1,485,828 1,301,881 1,117,849 1,062,083

Port Development CDB** Caribbean Development Bank 249,248 - -

2,131,200 - -

Port Development EIB** European Investment Bank 992,191 - -

Virgin Gorda/Tortola Water Supply European Economic Community 1,516,976 1,705,373 1,623,080 1,572,527

Road Improvement Social Security Board 800,000 600,000 400,000 200,000

Maintenance Project (RIMP)

DBVI Capital Increase European Investment Bank 600,000 474,855 337,273 237,100

Airport Feasibility Study European Investment Bank 143,582 - - -

Beef Island Airport

Terminal Social Security Board 2,607,500 2,309,500 2,011,500 1,713,500

Scotia Bank 1,218,760 941,974 671,142 389,731

European Investment Bank 2,380,866 1,105,678 776,723 264,510

Runway Caribbean Development Bank 12,412,237 18,962,980 16,889,949 14,380,379

Road Improvement and Infrastructure Social Security Board

Development 9,848,116 6,682,912 6,075,375 5,315,828

New Peebles Hospital Social Security Board 35,000,000 35,000,000 32,812,500 29,895,833

Social Security Board - 15,000,000 13,875,000 12,375,000

Banco Popular - 45,000,000 45,000,000 44,250,000

Supply of Greenhouses - 4,658,921 4,658,921 1,408,824

Total 72,008,782 134,251,314 126,713,341 113,473,556

Source: Audited accounts for years ended 31 December 2008 to 2010, Unadited accounts for year ended 31 December 2011 and Pw C Analysis

Evolution of Net Fiscal Position – Debt Obligations -The BVIGOV’s public debt increased to $113.5 million at December 201, and guaranteed debt equalled $21.3 million, while unallocated reserves equalled $7.4 million. $86.9 million of this debt was raised to finance construction of the New Peebles Hospital.


PwC


Final

PwC view – The BVIGOV’s borrowing capacity is limited due to insufficient liquid assets but debt service costs appear manageable at $13.2 million annually or 5% of total revenues.

Debt Capacity

We further noted that the borrowing limits in the Protocols for Effective Financial Management (signed with the UK Government in 2012) require minimum Liquid Assets of 25% of recurrent expenditure.

Therefore, these assets should amount to a minimum of approximately $63 million at year-end 2011, as the 2011 recurrent expenditure equalled $251 million. Our understanding is the Reserve Fund is the only unallocated Liquid Asset. When compared to the total annual expenditure of $251 million in 2011 the $7.4 million Reserve Fund balance at year-end equalled 3% and was well below the 25% minimum.

In order to satisfy this protocol clause, the BVIGOV would need to increase the Reserve Fund by approximately $57 million as at December 2011. The total public debt was also approximately twice the total reported assets at $113.4 million vs. $57.5 million (excluding fixed assets). However, debt service costs appear somewhat manageable at $13.2 million in 2011 or 5% of total recurrent revenues and the total net debt ratio was also less than the 80% of annual recurrent revenue.

We also noted that $50 million or 44% of the $113.5 million in public debt was provided by the BVI Social Security Board for construction of the hospital. We have no information on the total assets and investment policies of this statutory body; however this loan amount appears to be significant for one project from an entity that would be expected to have a low risk profile. An investigation into the impact of these loans on the BVI Social Security Board’s financial status may be warranted.

It is also important to note that our scope did not include analysis of the debt terms such as loan covenants, reporting requirements, and repayments terms. We did not obtain details of the current portion of the public debt owed. Our work was limited to identification of the public debt as a major contributor to the BVIGOV’s net fiscal decline and a review of the profile of this debt.

21


4 Debt Obligations







(Sea Defense) 1,485,828 1,301,881 1,117,849 1,062,083


2,131,200 - -







Beef Island Airport


Scotia Bank 1,218,760 941,974 671,142 389,731




Development 9,848,116 6,682,912 6,075,375 5,315,828



Banco Popular - 45,000,000 45,000,000 44,250,000


Total 72,008,782 134,251,314 126,713,341 113,473,556


Debt Obligations & Borrowing Capacity – The Reserve Fund would require additional contributions of approximately $57 million to satisfy the Liquid Assets guidelines executed with the UK Government (based on December 2011 balances).


PwC


Final

Evolution of Net Fiscal Position – The BVIGOV generated annual net fiscal deficits each year over the four year period reviewed except 2011, as the total annual expenditure (including Development Expenditure) exceeded the total income generated.

Extracts of the Abstract Statements compiled by the Treasury Department (see Appendices for full version) are summarized in the table above. These statements provide budgeted and actual income and expenditure annually. The recurrent income and expenditure are presented on a cash basis. However, as previously discussed the Contributions to Other Funds do not represent actual cash transfers except for the Consolidated Fund transfer amounts presented in each year above and the Reserve Fund in 2011. There are no actual funds available in the Pension Fund, Contingency Fund, and Repairs & Renewal Fund – based on our review of the bank accounts and G/L details.

The statement above indicates the BVIGOV has generated recurrent operating surpluses over the review period although actual revenues have fallen short of budgeted revenues each year. However, timely accurate reporting is critical to ensure proper financial management of scarce resources particularly since revenues are seasonal while a significant portion of recurrent expenditure are fixed, as payroll accounts for in excess of $90 million of the annual expenditure. FSC fees, which account for approx. 60% of total revenues, are paid twice per year by registered businesses, and tourism related revenues are highest during the winter seasons.

The development expenditure practices also requires greater control and improved fiscal management. We analyzed the actual development expenditure each year over the last four years, as compared to funds available, and noted development expenditure exceeded the budgeted amounts each year and supplemental appropriations were required to approve the excess expenditure. This practice has contributed to the decline in actual Consolidated and Development Fund balances and the overall decline in the net fiscal position at December 2011.

22


5 Evolution of Net Fiscal Position

PwC view – The BVIGOV’s declining net asset position was also due to development expenditure that exceeded annual operating surpluses, which resulted in net fiscal deficits each year (except 2011) and the funding of this expenditure via debt or depletion of savings by use of Consolidated Fund reserve balances.

BVI Government Annual Financial Statements Statement of Income & Expenditure


Dec-08 Dec-08 Dec-09 Dec-09 Dec-10 Dec-10 Dec-11 Dec-11

US$ Budgeted

Actual

(Audited) Budgeted

Actual

(Audited) Budgeted

Actual

(Audited) Budgeted

Actual

(Unaudited)

Recurrent Activity

Recurrent Revenue 284,605,000 278,580,199 279,841,000 268,644,829 273,603,000 272,960,807 287,884,000 287,479,526

Less: Recurrent Expenditure (264,222,785) (248,352,177) (260,946,500) (253,665,085) (253,692,675) (256,396,051) (260,808,200) (251,006,071)

Operating Surplus - As Reported 20,382,215 30,228,022 18,894,500 14,979,744 19,910,325 16,564,756 27,075,800 36,473,455

Contributions to Other Funds

Development Fund (32,667,900) (35,342,879) (30,399,300) (22,647,900) (19,726,000) (19,726,000) (21,076,200) (30,068,000)

Emergency/Disaster Fund (1,000,000) (1,000,000) (1,800,000) - (300,000) - (300,000) -

Pension Fund (2,200,000) (2,200,000) (500,000) - (2,000,000) - (4,000,000) -

Reserve Fund (1,000,000) (1,000,000) (200,000) - (300,000) - (2,300,000) (1,780,100)

Contingency Fund (500,000) - (500,000) - (300,000) - (300,000) -

Repairs and Renewal Fund (200,000) (200,000) (500,000) - (100,000) - (100,000) -

Total Fund Contributions - As Reported (37,567,900) (39,742,879) (33,899,300) (22,647,900) (22,726,000) (19,726,000) (28,076,200) (31,848,100)

Consolidated Fund Surplus/(Deficit) (17,185,685) (9,514,857) (15,004,800) (7,668,156) (2,815,675) (3,161,244) (1,000,400) 4,625,355



PwC


Final

Evolution of Net Fiscal Position (continued) – Annual development expenditure significantly exceeded the budgeted funding available and supplementary appropriations of $67.7 million were approved towards meeting the expenditure shortfall in 2009 and $55.1 million was approved via revotes in 2011.

Development Fund Inflows and Expenditure

The tables at left indicate the actual cash inflows to and outflows from the Development Fund, and the source of the cash inflows.

In 2009, the budgeted contribution of $30.4 million to the Development Fund could not be met by the Consolidated Fund operating surplus. Therefore, $22.6 million was actually contributed from this Fund (and $23.3 million in total from Local Resources) per table at left and a net deficit or shortfall of $7.7 million occurred (see prior page). Consequently, additional funding for the Development Fund was obtained primarily from Loans of $15 million.

On a cash basis, the shortfall in the Development Funds was significant in 2009 as $26.7 million was initially appropriated for transfer to this Fund; however, an additional $67.7 million in supplemental appropriations was approved.

With respect to actual amounts transferred as indicated at left, in 2009 the Development Fund received $38.3 million in cash (including $22.6 million from the Consolidated Fund and $15 million in debt funding) but $57.4M was spent, which resulted in a shortfall of $19.1 million. In 2010 total expenditure of $30.75 million exceeded total inflows by approx. $4 million.

In 2011, total expenditure was less than the total inflows as loan proceeds were not all utilized. However, the disbursement of Local Resource funds exceeded the inflows in 2011, as well as 2010 and 2009. In aggregate, Development Fund payments from local resources (Consolidated Fund) exceeded the total inflows by $25.6 million between FY2009 to FY2011. This deficit financing via debt or Consolidated Fund reserves contributed to the net fiscal decline as at December 2011..

23


5 Evolution of Net Fiscal Position

PwC view – In aggregate, Development Fund payments from local resources (Consolidated Fund) exceeded the total inflows by $25.6 million between FY2009 to FY2011. The weaknesses in budgetary control over development expenditure was a significant contributor to the decline in the BVIGOV’s net fiscal position at December 2011.

Summary of Development Fund Activity

Balance Receipts Payments Balance

Jan-08 Dec-08

$ $ $ $

Grants (1,790,135) 101,462 21,686 (1,710,359)

Loans (2,234,515) 18,021,200 19,272,719 (3,486,034)

Other 6,699,333 560,114 - 7,259,447

Local Resources (40,011,301) 35,542,879 34,859,901 (39,328,323)

Total (37,336,618) 54,225,655 54,154,306 (37,265,269)


Jan-09 Dec-09

$ $ $ $

Grants (1,710,359) 10,586 5,007 (1,704,780)

Loans (1,472,222) 15,000,000 17,940,074 (4,412,296)

Other 6,699,333 - - 6,699,333

Local Resources (40,782,021) 23,327,866 39,439,903 (56,894,058)

Total (37,265,269) 38,338,452 57,384,984 (56,311,801)


Jan-10 Dec-10

$ $ $ $

Grants (1,704,780) 40,989 26,638 (1,690,429)

Loans (4,412,296) 2,055,407 2,055,407 (4,412,296)

Other 6,699,333 - - 6,699,333

Local Resources (56,894,058) 24,623,932 28,673,361 (60,943,487)

Total (56,311,801) 26,720,328 30,755,406 (60,346,879)


Jan-11 Dec-11

$ $ $ $

Grants (1,690,429) - 8,596 (1,699,025)

Loans (4,412,296) 14,178,887 4,459,595 5,306,996

Other 6,699,333 - - 6,699,333

Local Resources (60,943,487) 30,096,091 35,510,029 (66,357,425)

Total (60,346,879) 44,274,978 39,978,220 (56,050,121)

Source: Treasury Management Information, PwC Analysis


PwC


Final

Examination of Major Contracts

24


6 Examination of Major Contracts Glossary Appendices Supporting information Executive report At a glance – our views

PwC


Final

Procurement of Major Contracts on a Sole Source Basis –There were serious deficiencies in the manner in which major contracts for development expenditure were procured, approved and awarded during 2011. 24 of the 27 Major Contracts executed during 2011 were awarded on a sole source basis by Cabinet without public tendering.

PwC view – The predominant practice of waving the public tendering process by Cabinet appeared to be motivated by a need to expedite service delivery. Cabinet should however document the rationale for sole selection of a supplier to ensure a measure off control and transparency is included in the procurement process.

Major Contracts Awarded - 2008 to 2011

There were 27 Major Contracts (contracts with values greater than $100,000) awarded during 2011 totalling $46.4 million, including a $30.8 million contract awarded to James Todman Construction signed on 4 November 2011. See Appendices for a full listing of these contracts

The Public Finance Management Act Regulations 2005 (and related amendments) stated that “the procurement of all goods and services shall be procured by tender when the value of the goods and services exceeds $75,000, unless Cabinet otherwise directs”. This threshold was subsequently increased to $100,000 in the 2007 Amendment to the Public Finance Management Act Regulations 2005.

We observed that only three (3) of the twenty-seven (27) Major Contracts executed in 2011 were awarded via a public tender process managed by the Procurement Unit.

As indicated in the table below, there has been a considerable and steady decline in the number of contracts awarded via public tender – from 15 out of 16 in 2008 to 3 out of 27 in 2011. This decline occurred while the total value of contracts awarded has increased.

Major Contract Awards managed by the Procurement Unit

The value of the three (3) contracts publicly tendered equalled $4.8 million (out of the $46.4 million awarded). Notably, the $30.8 million contract awarded to James Todman Construction to complete the hospital was not awarded via public tender.

We were provided with evidence of Cabinet’s directive to waive the tender process for 22 contracts. However, we have not been provided with evidence of waivers or any other form of instruction by Cabinet for the five (5) contracts below:

Major Contracts – No Evidence of Cabinet Waiver Provided

25


6 Examination of Major Contracts

2008 2009 2010 2011

Total Major Contracts 16 24 34 27

Total major contract amount for the year $6.1M $16.3M $18.2M $46.4M

Procurement 15 10 5 3

Contract No. Contractor Amount (US$)

DGO/2/11 Solid Power Boats Inc 273,257.00

DGO/3/11 A. H. Parker & Sons 118,906.00

No contract number

Real Legacy Insurance 396,416.00

MC/001/11 Tortola Carpet Sales & Services 185,808.00

No contract number

KPMG 300,000.00

Total 1,274,387.00

Source: Procurement Unit Information, PwC Analysis

Source: Treasury Management Information, Ministry of Finance and PwC Analysis


PwC


Final

After spending $62.9 million through 2009 under a contract with Carimex for construction of the new Peebles Hospital, construction was not completed four years after work commenced in 2007.

In February 2011 Cabinet waived the public tender process for a new contract for the Internal Works of the New Peebles Hospital. Cabinet decided that “the New Peebles Hospital Steering Committee be allowed to enter into negotiations on behalf of the Government with both Interhealth Canada and James Todman Construction Ltd and Hill International as a Joint Venture, simultaneously, on the contract to execute the Internal Works on the New Peebles Hospital”.

On 31 August 2011, Cabinet decided that “the New Peebles Hospital Steering Committee be allowed to enter into further negotiations on behalf of the Government with James Todman Construction Ltd. Joint Venture with dck Worldwide, on the contract to execute the Internal Works on the New Peebles Hospital”.

On 19th October 2011, Cabinet decided that a contract could not be awarded until the joint venture entity was formed.

On 4 November 2011, a $30.8 million contract was executed between Mr. Ralph O’Neil (Premier) and James Todman for the internal works contract.

We also noted that Cabinet waived the public tender process on the contract for the Building Envelope and External Works for the New Peebles Hospital, and a $4.1 million contract was also awarded to and signed with James Todman Construction Ltd. on 5 December 2011.

The reason for waiving the public tender process was not stated in the Cabinet Minutes extract.

Given the problems that arose with the original construction; the fact that $95 million in loans were secured for this project; and the severe need for completion of the construction in a timely but high quality manner, the basis for not seeking tenders from a wide pool of local and international contractors should have been clearly documented.

We also noted that $275,000 in variation order increases to the $4.1 million contract were already approved in 2012.

The BVI legislation provides Cabinet with the authority to waive Major Contracts, and the award of contracts on a sole source basis is sometimes required in particular circumstances.

However, none of the Cabinet Papers we examined that documented Cabinet’s instruction to waive the tender process stated the basis or rationale for waiving the process. The papers all stated that the contract award should be expedited.

Proper governance and leading practice for management of public funds require a clear basis for decision making and appropriate contract management procedures should also be in place during the operation of the contract. The award process adopted in prior years, and during 2011 in particular, was subject to potential abuse and mismanagement.

26



Cabinet Award of $30.8 million contract – The Cabinet waived the public tender process for the $30.8 million contract award for Internal Works of the New Peebles Hospital.

PwC view – The basis and reasoning for the waiver of the public tender process and awarding of Major Contracts on a sole source basis should be clearly explained and documented by Cabinet, and should be an exception and not the norm.


PwC


Final

Non-Acceptance of Recommendations from Public Tenders Committee: Cabinet also did not accept the recommendation of the Public Tenders Committee for one of the three contracts that were awarded via a public tender process managed by the Procurement Unit.

PwC view – The practice of awarding Major Contracts directly by Cabinet on a sole source basis, without any documented basis for waiving the public tender process, requires immediate correction that may necessitate an amendment to the current legislation.

The three (3) contracts that were awarded under a public tender process managed by the Procurement Unit are listed in the table below:

Contracts Awarded via Procurement Unit Tender Process

However, the contract awarded to Electronic Solutions (Trevor Blaize) for the Supply and Installation of Closed Circuit Television was also awarded based on a Cabinet directive . The Public Tenders Committee Evaluation team recommended that the contract should be awarded to Infinite Solutions but this recommendation was not accepted by Cabinet.

Infinite Solutions scored the highest points by the evaluation committee and had the lowest bid amount, as indicated in the table below

Bids submitted for Contract Number DGO/1/11

.

We also noted that the contracted amount of $308.7 thousand was lower than the amount originally included in Electronic Solutions’ bid, which was $408.4 thousand.

Therefore, the selection process for one of the three contracts that did go through the Procurement Unit’s tendering process was overridden by Cabinet.

We were not provided with any documentation indicating Cabinet’s basis for setting aside the Public Tenders Committee’s evaluation and awarding the contract to Electronic Solutions.

Further investigation into the facts and circumstances surrounding the award of this contract may be warranted.

27



Contract No. Price (US$) Points Awarded

Infinite Solution 257,652.00 454

Electronic Solutions (Trevor Blaize) 408,381.30 399

Vanguard Security Services & Supply Limited 334,513.00 200

Data Pro 650,000.00 118

Contract No. Contractor Amount (US$)

MNRL1/11 WDMO 254,375.90

MOF/1/11 James Todman Construction 4,174,444.22

DGO/1/11 Electronic Solutions (Trevor Blaize) 308,682.00

Total 4,737,502.12




PwC


Final

Major Contracts Awards not Included in 2011 Budget – Five (5) of the 27 Major Contracts, totalling $2.1 million, were not provided for in either the budgeted capital expenditure estimates or Supplementary Appropriation Provisions for the year.

PwC view – The awarding of Major Contracts that were not budgeted for and retroactive inclusion in the subsequent budget is a major sign of inadequate controls over major contract expenditure.

We were advised by the Accountant General (Acting) that all Major Contracts must be provided for in the Estimates of Capital Expenditure in annual budget estimates or via Supplementary Appropriation Provisions (SAP) approved by the House of Assembly Resolutions for the year.

We examined the 2011 budget estimates and SAPs and noted that 5 of the 27 Major Contracts awarded during 2011 were not listed in the 2011 budget or subsequent SAPs (see table at right).

The Accountant General stated that the three contracts awarded to RAL Trucking Service, Real Legacy Insurance, and Tortola Carpet Sales & Services actually related to recurrent expenditure, hence the non-inclusion in the Capital Expenditure estimates.

However, the contracts awarded to KPMG and STO Enterprises Ltd were confirmed as unbudgeted for 2011 and were included in the 2012 budget based on Cabinet instructions to award these contracts under waiver.

28



Major Contracts Excluded from 2011 Budgeted Capital Expenditure

Contract No.

Contract Date

Contractor Description Amount (US$)

PO/1/11 3-Mar-11 STO Enterprising Ltd Acquiring and construction of stadium at AO Shirley Grounds

1,082,995

DG Not provided to us

KPMG

Job Proposal Analysis 300,000

SW/1/11 18-May-11 RAL Trucking Service Collection of solid waste on VG

147,847

MOF Not provided to us

Real Legacy Insurance Insurance coverage for Central Admin Building (renewal)

396,416

MOF Not provided to us

Tortola Carpet Sales & Services

Cleaning Service for Central Admin Building

185,808

Total 2,113,066

Source: Auditor General, Treasury Management Information and PwC Analysis


PwC


Final

We were advised by the Manager of the Procurement Unit (Ms Hodge-Rhymer) that a Major Contract should only be signed after Cabinet has approved the vendor selection or, in the case of a waiver, after they have waived the tender process and selected a vendor.

We performed an analysis in order to determine whether any contract was signed before Cabinet approval/selection and noted three contracts were signed on 19 September 2011 while the Cabinet approval was dated 28 September 2011.

These contracts were signed by Mr. Ralph O’Neil (former Premier) and the respective Directors or Owners of each company. See Appendix 8 for a listing of all contractors and Directors/Owners awarded Major Contracts in 2011.

Contracts signed before Cabinet Approval

Additionally, during our review of the Cabinet Paper Record and Extract from the Minutes of the Meeting of Cabinet dated 17th August 2011 related to the award of a contract to Qwomar Construction Ltd, we noted that the Acting Attorney General advised Cabinet that “if Ministry officials with no authority were making decisions, they must be warned to refrain from such actions”.

Cabinet decided that “a strong warning should be issued from the FS to Ministry officials to refrain from giving approval for contracts, contrary to Procurement Protocols of the Government of the Virgin Islands”.

Additionally, three of the Cabinet Minute extracts reviewed indicated that the relevant Ministries conducted their own selective tender process where certain contractors were shortlisted to bid on a contract.

This selective tender process occurred under the Ministry of Education for the contract to supply furniture to the Francis Lettsome Primary School; the Ministry of Finance for the Red Bay Rehabilitation Project; and via a Steering Committee for the New Peebles Hospital project.

These tender processes run by Ministries do not appear to be consistent with the Government’s Procurement Protocols, and bypass the Procurement Unit.

The adherence to proper procurement practices requires urgent improvement. If timeliness of the management of the tender process is a deciding factor for the Cabinet waivers and bypassing of the Procurement unit by Ministry officials then sufficient resources should be assigned to the Procurement Unit to effectively manage the tender process in a expeditious but transparent manner.

29



Contract Number

Supplier Cabinet Approval

Date

Date Contract Signed

Amount (US$)

PO/2/11 Tortola Concrete Products 28-Sep-11 19-Sep-11 1,071,914.00

PO/3/11 D & C Construction 28-Sep-11 19-Sep-11 252,689.06

PO/4/11 Anegada Concrete Products 28-Sep-11 19-Sep-11 500,346.00

Total 1,824,949.06

Major Contracts Signed before Cabinet Approval – The date of signature on three (3) of the Major Contracts awarded in 2011 were before the Cabinet approval date

PwC view – The procurement protocols of the BVIGOV were not adhered to in a consistent manner as Ministry officials were also approving Major Contracts without or prior to Cabinet approval. The Procurement Unit was also bypassed by Ministry officials and shortlisted tendering was conducted by various Ministries.

Source: Ministry of Finance, PwC Analysis


PwC


Final

We obtained evidence of the splitting of Major Contract awards to several contractors. The Cabinet Paper Record and minutes extract from the Cabinet meeting held on 6 January 2011 indicated that the $2.3 million contract for the Construction of the North Sound Alternate Road Infrastructure Network was disaggregated and awarded to five (5) different contractors

The Cabinet Paper Record dated 21 September 2011 indicated that the $2.8 million award for the Anegada Road Infrastructure Development contract was disaggregated and awarded to three (3) different contractors. The table at left provides a listing of these split contracts.

The splitting of contracts may not result in Value for Money and challenges with the proper management of delivery by multiple suppliers could adversely affect the quality of the work provided. This practice of splitting contracts should be investigated further and ceased where appropriate. When contracts are legitimately disaggregated and awarded to various vendors contract monitoring controls and project oversight should be strengthened to ensure Value for Money from these contractors.

We also noted $950,494 and $988,630 of the total contract costs were not allocated to a specific sub-contract or contractor. The purpose and eventual recipients of these amounts under these two contracts should be investigated further.

Contract Splitting Identified

Note: Unallocated Costs represent approved budgeted capital expenditure that were not allocated to a specific contract or supplier.

30



Splitting of Major Contracts: Two contracts totalling $5.1 million in 2011 were split and awarded to eight (8) different vendors. However, approx. $2 million of the total contract costs were not allocated to a specific subcontract or contractor.

PwC view – The practice of splitting contracts could adversely affect the quality of service delivery on major projects and Value for Money, unless a clear basis for splitting exists and proper oversight is put in place to manage the contractors.

Project Contractor Contract Value (US$)

Construction of North Sound Alternate Road Infrastructure Network

Enchantment Holdings Ltd

Virgin Gorda Concrete

Ebony and Ivory Concrete Supply

Leonad’s Concrete Products

D&C Construction

Unallocated Costs

Total Award by Cabinet

$261,362.69

$133,688.00

$374,497.00

$374,497.00

$205,461.00

$950,494.31

$2,300,000

Anegada Road Infrastructure Development

Tortola Concrete Anegada Concrete D&C Construction Unallocated Costs Total Award by Cabinet

$1,071,914.00

$500,346.00

$252,689.06

$988,630.63

$2,813,579.69



PwC


Final

We also noted the existence of a number of contract awards that equalled or were nominally less than the $100,000 threshold for tendering.

Section 170(2) of the Public Finance Management Regulations of 2005, read with its amendment in 2007, states that goods or services that exceed $100,000 must be procured by tender unless otherwise indicated by the Executive Council (i.e., Cabinet).

We extracted and analyzed a list of payments that were just under $100,000 during 2011.

We noted that none of the contract amounts identified in the table at left were awarded to the same contractor. We also conducted a search to determine whether a number of Petty Contracts were repeatedly issued to the same vendor during the year and did not identify any unusual activity regarding the volume or timing of awards of Petty Contracts to a particular vendor.

However, our ability to detect whether deliberate circumvention of the threshold potentially occurred was limited to a review of the JDE database as our scope did not include interviewing all of the parties involved in the execution of these Petty Contracts or a review of all Petty Contracts.

Therefore, further investigation of the contracts identified at left may be warranted based on your specific knowledge of the nature of the contracts and/or the vendors identified.

Contracts with Values Nominally less than $100,000

31



Potential conversion of Major Contracts to Petty Contracts: The practice of converting Major Contracts to Petty Contracts at values slightly less than $100,000 could adversely affect the quality of service delivery on major projects and overall Value for Money spent.

PwC view –Contracts may be deliberately priced to circumvent the threshold for public tendering. Therefore, controls should be implemented to deter this practice including limiting and/or continuously monitoring the number of petty contracts awarded to one vendor over a specified period of time.

Vendor Name Amount (US$)

Lettsome, Ileta by National Bank of VI 98,850.00

George, Ray 97,809.21

Florida Hardware Company, llc 96,425.91

Luis or Francisco Frometa 95,426.48

Potter, Ernest E. By First Bank 95,193.45

S & D Security and Alarms Systems 92,957.76

Smartmart 92,260.68

Total 668,923.49

Source: Treasury Management Information, Ministry of Finance, IT Department and PwC Analysis


PwC


Final

We attempted to conduct a review and comparison of all payments issued under each of the Major Contracts executed in 2011. However, we identified a major control weakness and system limitation that impeded our ability to conduct this exercise conclusively.

Although we could perform an analysis by searching for all payments by vendor name (as provided in the table at right), the contract number is not always recorded in the JDE accounting system as a reference number when payments are recorded. Therefore, each payment in the system is not currently assigned to a particular contract in every instance a contract payment is recorded.

Consequently, as indicated, we identified three (3) vendors where the total payment amounts exceeded the 2011 Major Contract amount for the particular vendor. However, we cannot conclusively state that there were overpayments against the 2011 contract as we cannot determine whether this vendor also had a petty contract or another Major Contract from a prior year on which payments were made. Change orders or contract variations are also not recorded in JDE. [Note: a review of Petty Contracts was not part of our scope].

Treasury personnel stated that the total contract amount and prior payments are reviewed manually before a payment is processed. However, the controls over contract payments would be improved if one of the fields for all payment records in JDE specified the contract number as a unique identifier. This would enable a preventive system based control where additional payments in excess of the contract amount are not allowed without approval from the appropriate senior officer (such as the FS or Accountant General). The consistent inclusion of the contract number in JDE could also facilitate improved report generation and auditing of all payments issued against a particular contract.

Contract Amount vs. Amount Paid

.

32



Contract Payments vs. Contract Award Amount: The contract number is not consistently entered in the JDE system for all payments issued to a contractor. Therefore, controls over contract monitoring and payments are solely reliant on manual reviews of the prior amounts paid when a request for payment is received.

PwC view – The inclusion of the contract number on all contract payments will enable preventive system-based controls over the disbursement of funds, and will also facilitate improved report generation and subsequent auditing of all contract payments against the contract amount.

Vendor Nam e

Paym ents per JDE

System **

Contract

Am ount Difference

ELECTRONIC SOLUTIONS 27 6,844 308,682 (31 ,838)

QWOMAR TRADING LTD. 88,963 1 44,250 (55,287 )

JAMES TODMAN CONSTRUCTION LTD. [Combined Contracts] 8,395,915 34,983,31 5 (26,587 ,401 )

D & C CONSTRUCTION 552,889 458,1 50 94,7 38

SOLID POWERBOAT INC. 27 4,987 27 3,257 1 ,7 30

A.H. PARKER & SONS (GT. BRITAIN) LTD. BY 17 8,861 1 1 8,906 59,955

ANEGADA CONCRETE PRODUCTS 141,163 500,346 (359,1 83)

TORTOLA CARPET SALES & SERVICES LTD 59,555 1 85,808 (1 26,253)

** Note: Payments were rev iewed for the period 1 January 2011 through 13 November 2012

Source: JDE System extracted provided by Ministry of Finance IT Department and PwC review of contract


PwC


Final

Payments without Contracts – There were eight (8) payments which exceeded $100,000 for which there were no contracts in the Major Contracts listings provided for 2009, 2010, and 2011.

PwC view – The payments that exceeded $100,000 where no corresponding contract was identified should be examined further, and controls regarding the documented support required before payments are approved should be strengthened as necessary.

Payments without contracts

We performed an analysis to determine if all payments above $100,000 in 2011 were made in accordance with a duly signed contract as required by Public Finance Management Regulations 2005.

The adjacent table contains a list of eight payments that exceeded $100,000 in 2011 for which there was no contract in the list of Major Contracts awarded in 2009 , 2010, and 2011, provided to us by the Auditor General and the Accountant General. This list excludes inter-departmental payments within the BVIGOV and retirement and compensation payments.

Further investigation by the Ministry of Finance should be conducted to ascertain whether and why these substantial payments were apparently made without a corresponding contract.

Payments >$100,000 with no Corresponding Contract

33



Vendor Name Check Remark Check Date Check Amount (US$)

Alun Jones Q.C Wire transfer closeout 2012-09-24 146,703.08

Caribbean Insurers Ltd. Fmu-185288 2012-03-15 198,213.00

Fujitsu Caribbean (Barbados) Limited Wire transfer closeout 2012-02-20 101,162.30

Professional Roofing & Construction Co. Min. Communications & works 2012-11-09 119,172.26

VI Festival & Fairs Committee Mec doc dated 10/04/11 548622 2011-12-07 250,000.00

Virgin Island Festival & Fairs Committee Culture dept. Inv. 002 2012-07-16 123,860.50

Virgin Island Festival & Fairs Committee Culture dept. Inv. 001 2012-07-06 123,860.50

World Business Media and News Wire transfer closeout 2011-07-12 103,047.09

Total 1,166,018.73



PwC


Final

Payments without Proper Approval - Of the 42 payments reviewed, 14 were made without a Payment Approval Form indicating that the appropriate personnel signed off that the serve provided was adequate prior to the processing of payment.

Payment Approval Process

We were advised by the Accountant General that it is not necessary for invoices to be submitted for all contracts.

However, she advised that all payments must have a Payment Certificate. The Payment Certificate requires a competent person (usually an employee of the relevant Ministry or Department) to verify whether the work was completed, and whether it was delivered to the satisfaction of the Government of the Virgin Islands.

We inspected the payment documents in order to establish if a Payment Certificate was included for all payments. We observed that 33 of the 42 payments reviewed did not contain a Payment Certificate (see Appendices for detail of this payments analysis.

We were further advised by Ms Kim Lennard, Senior Accounts Officer, (“Ms Lennard”) that all payments must also have, among other documents, a Payment Approval Form signed by the appropriate persons in order for a payment to be made.

We requested the payment documentation for all payments on Major Contracts during the period under review in order to determine whether they followed the stated payment approval process

The 14 payments in the table alongside did not contain a Payment Approval Form. On further examination we noted that RAL Trucking Service and Tortola Carpet Sales & Services Ltd provide routine recurring waste collection and maintenance/cleaning services. However, the lack of payment approval for the other vendors (in particular) should be further investigated and controls strengthened to ensure all payments are properly approved by appropriate personnel that can verify that the contracted work was adequately performed.

Payments without a Payment Approval Form

34



Supplier Cheque No.

Cheque Date

Amount (US$)

James Todman Construction Ltd. 43414 9-Nov-12 $ 782,906.85

STO Enterprise Ltd. 40380 21-Jul-11 $ 108,299.50

R.A.L Trucking Service 559789 8-Jul-11 $ 7,979.16

R.A.L Trucking Service 556239 25-May-11 $ 7,979.16

R.A.L Trucking Service 554923 14-Apr-11 $ 7,979.16

R.A.L Trucking Service 553222 14-Apr-11 $ 7,979.16

R.A.L Trucking Service 550516 3-Mar-11 $ 7,979.16

Caribbean Insurers Ltd. 563131 17-Aug-11 $ 132,142.00

Caribbean Insurers Ltd. 557696 15-Jun-11 $ 50,050.65

Caribbean Insurers Ltd. 551044 17-Mar-11 $ 35,523.55

Caribbean Insurers Ltd. 550250 3-Mar-11 $ 16,985.90

Tortola Carpet Sales & Services Ltd. 560232 13-Jul-11 $ 16,110.98

Tortola Carpet Sales & Services Ltd. 555756 17-May-11 $ 7,837.00

Tortola Carpet Sales & Services Ltd. 553615 20-Apr-11 $ 7,742.00

Total $ 1,197,494.23

PwC view – Lack of proper authorization for payments can lead to fraudulent payments and mismanagement of public funds. The required submission of signed Payment Certificates or Payment Approval Forms should be strictly enforced before a payment is issued.



PwC


Final

Retention of Tender Records– Procurement documentation was not properly archived/retained for the three (3) contracts awards that were managed by the Procurement Unit in 2011.

PwC view – The Public Tenders Committee Evaluation forms are the most critical documents indicating the scoring and evaluation process for each tenderer. These documents, at the least, should always be on file for every tender evaluation.

Retention of tender procurement documents

According to the tender process explained to us by Ms Hodge-Rhymer (Manager - Procurement Unit ) and the provisions contained in Sections 173-175 of the Public Finance Management Regulations of 2005, we expected to see at least the following documents for each tender:

Notice of an invitation to tender published in the Gazette and at least one local newspaper

Central Tenders Board Project Checklist for Opening of Bids

Tender documents submitted by each tenderer

Public Tenders Committee Evaluation Forms

A document summing the totals recorded in the Public Tenders Committee Evaluation Form indicating the total score for each tenderer

A recommendation by the technical evaluation team, where applicable

A recommendation by the Central Tenders Board to the Minister

Cabinet’s final decision

A letter of notification to the tenderer

The adjacent table contains a summary of the tender documents on file as provided to us by Procurement.

Tender Documents on file

The summary table above indicates improvement in the documentation retention procedures for all tendered contract awards is required to ensure evidence of a transparent process is maintained. If the lack of available documentation indicated in the table above means the particular step was not performed then these are further examples of areas in the end-to-end procurement practices that require urgent improvement.

35



Documents Required DGO/1/11 MNRL/1/11 MOF/1/11

Notice of an invitation to tender published in the Gazette and at least one local newspaper

N N N

Central Tenders Board Project Checklist for Opening of Bids

Y Y Y

Tender documents submitted by each tenderer

Y Y Y

Public Tenders Committee Evaluation Forms

Y N N

A document summing the totals recorded in the Public Tenders Committee Evaluation Form

Y N N

A recommendation by the technical evaluation team

N N N

A recommendation by the Central Tenders Board to the Minister

N N N

Cabinet’s final decision N N N

A letter of notification to the tenderer Y Y N

Source: Procurement Unit and PwC Analysis


PwC


Final

Document sequence for payments - The chronology of the steps required for the approval of payments were not consistently followed in all instances for the payments reviewed.

Document Sequence for Approval of Payments

We were advised by the Accountant General that the chronological sequence of steps for the approval and processing of payment on contracts should be as follows:

1. Signed contract;

2. Purchase Order (PO) generated and signed;

3. Invoice received / Payment Certificate generated and signed;

4. Payment Approval Form generated and signed;

5. Payment voucher generated and signed;

6. “Passed for payment” stamp and signature of Treasury officer; and

7. Cheque issued

The tables opposite contain the 7 payments, out of the 42 payments examined, where the vouchers were created before the Payment Approval Form was signed or the Payment Approval Form was completed before the PO was created.

Additionally, as previously stated, eight payments were identified where no contract was included in the contracts listing provided for the prior three years.

Voucher created before the Payment Approval Form

Payment Approval Form completed before the PO

36



Contract No. Cheque No.

PO Payment Approval Form

Voucher Amount

DGO/001M/2011 35891 7-Feb-11 7-Feb-11 2-Feb-11 $ 184,239.20

MCW#1/2011 40011 22-Dec-10 12-May-11 5-May-11 $ 235,226.42

MCW#3/2011 40010 22-Dec-10 12-May-11 5-May-11 $ 280,872.75

MCW/MC#4/2011 40191 22-Dec-10 17-Jun-11 15-Jun-11 $ 249,303.93

No contract number 550250 1-Mar-11 18-Feb-11 $ 16,985.90

Total $ 966,628.20

Contract No. Cheque No.

PO Payment Approval Form

Voucher Amount (US$)

MCW/MC#3/2010 40006 13-Mar-11 25-Feb-11 23-Feb-11 74,980.08

MOH/001M/2011 40187 17-Jun-11 8-Jun-11 21-Jun-11 63,002.26

Total 137,982.34

PwC view – Non-compliance with the sequence of steps for the approval and processing of payments on contracts can result in erroneous or fraudulent payments being made.

Source: Treasury Management Information and PwC Analysis

Source: Treasury Management Information and PwC Analysis


PwC


Final

High-Level Assessment of Treasury Operations

37


7 High-Level Assessment of Treasury Operations



PwC


Final

High-Level Review of Treasury Operations – Various weaknesses identified in this report have been communicated in the past and although some progress has been made with addressing certain issues additional urgent corrective action is still required.

PwC view – Overall, whilst progress has been made over the past year a great deal of work is still required to strengthen the efficiency and effectiveness of the Treasury function so that it can fully satisfy the Protocols for Effective Financial Management.

Background

In recent years several reports have commented upon the operations of the Treasury Department. The most recent carried out by Oxford Policy Management in 2010 concluded that “the accounting and reporting functions of financial management systems deployed by the BVI Government [through the Treasury Department] are of concern.”

The OPM report noted key weaknesses in the areas of financial planning, macro-fiscal forecasting and cash flow forecasting, and poor financial management information and reporting. It made several important recommendations which included:

• Strengthening of financial governance and internal controls

• The introduction of a multi-year budgeting framework

• The introduction of accrual accounting over the medium term

• Strengthening of procurement and contract management

• Financial reporting within agreed timetables

• The maintenance of an effective internal control framework

• Greater powers given to the Internal Audit function

Furthermore the report noted that financial data and reporting was poor, reconciliation processes needed to be improved, and the accounting technical system used needed upgrading or replacement.

On the following pages we comment on the progress that the Treasury Department has made since the 2010 report and highlight the scope for further improvement that remains.

38



Introduction

The Government of the British Virgin Islands relies upon it’s Treasury Department within the Ministry of Finance to help support and deliver its objective for effective financial Management as set out in the Protocols signed on 23rd April 2012. Furthermore the function is expected to provide a financial management operation which adheres to accepted good practice so that there are effective arrangements in place for the planning, management and reporting of the use of public funds.

The Treasury Department falls under the Ministry of Finance and is headed by the Accountant General. The Accountant General is responsible for the accounting of public monies and reporting on the Government’s accounts as set out in statutory instruments of the Constitution, Public Finance Management Act and Regulations, financial circulars, and financial instructions issued by the Ministry of Finance and Financial Secretary.

As part of this review PwC held discussions with the Accountant General and members of her senior staff management team to ascertain the current status of the Treasury operations. Due to the limitations of time constraints placed upon us we were not able to conduct an in-depth detailed assessment; rather the comments which follow are based upon an examination of the information provided to us and discussions with the Accountant General.

PwC


Final

Maturity of the Treasury Department – Key aspects of the operation of the Treasury Department fall well short of accepted good practice.

PwC view –Significant improvement in all of the key areas for effective Treasury management is required particularly regarding relevance of the department as a source of support for financial and strategic decision making, the development of internal resources, and risk management particularly including collection of revenues.

Our overall assessment of the current status of the Treasury operations, based upon our short review, is that it trends towards the lower end of the scale of what represents poor and good practice. This is not unexpected given the history of past difficulties but it is of concern that greater progress has not been achieved in addressing the fundamental basics of good financial discipline expected of any public body.

On the following pages we comment briefly and give examples of what we found to be poor practice, and also some more encouraging examples of where progress has been made.

We wish to stress at this stage that management are well aware of many of these issues but they need support and investment if a real difference is to be made and good practice achieved.

Insight – is important in effective finance function delivery. It is about Finance adding value to the organisation and supporting the strategic and operational decision-making processes.

Compliance & Control – this is about the need to optimise financial risk management, compliance and control to establish a sustainable cost effective control environment which meets today’s requirements as well as being flexible for future changes.

Efficiency - in Finance this means performing tasks in a timely and cost effective manner. This is typically achieved through simplified and standardised processes that leverage technology and make improvements to the efficient delivery of transactional processing through shared services or outsourcing.

Enablers – this is about having an effective finance organization, the development of the finance people, their skills, knowledge and experience, and the effective deployment of finance technology systems and data management.

During the course of our work a number of key themes emerged all of which fall under the above titles. These issues taken together form a formidable body of work that needs to be addressed urgently in order to stabilize the current situation, and provide a firm platform for enhancement and development. Each of the issues we have identified are in themselves capable of resolution quickly but making the changes required will be impacted to a greater extent by the environment and culture within which the Treasury Department is operating. In short it seems to us that everyone within the public administration must develop a greater awareness of the importance of good financial governance and management.

39



Poor practice

Good practice

Insight

Compliance

& Control

Efficiency

Enablers

Overall

Source: PwC Analysis

PwC


Final

The need for a high quality professional finance capability, to enable the BVI Ministries to do their job effectively, is greater than ever. The fiscal challenge, and the requirement for greater Value for Money, means that finance has a vital role to play in the delivery of public services.

The role of finance is represented in the diagram opposite. Achieving a high performing finance function within the BVI Government necessitates a clarity on the role and mandate of finance and the desired balance of activity between Efficiency, Compliance & Control, and Insight. This impacts on the areas of people, processes and systems.

Feedback from our discussions indicate that finance does not place sufficient attention on the provision of Insight, rather it focuses most of its activity on basic processing and to a much lesser extent on cost control, risk and compliance. Financial reports are often late and as our investigations earlier in this report highlight, prone to significant error and mis-reporting.

In the difficult environment of managing constrained finances the Treasury needs to be able to respond by engaging with the BVIGOV as a partner and providing real quality insight to support the key decisions that impact on the delivery of services.

To do this Treasury needs to be properly equipped with the skills, capabilities and tools to enable it to support change, increase efficiency, balance the budget and demonstrate value for money.

Insight

Compliance & Control Efficiency

© PricewaterhouseCoopers 2010. All rights reserved.

Efficiency in Finance means performing tasks in a timely and cost effective manner. This is typically achieved through simplified and standardised processes that leverage technology and make improvements to the efficient delivery of transactional processing through shared services or outsourcing. Compliance & Control is about the need to optimise financial risk management, compliance and control to establish a sustainable cost effective control environment which meets today’s requirements as well as being flexible for future changes. Insight is increasingly important in effective finance function delivery. It is about Finance adding value to the organisation and supporting the strategic and operational decision-making process.

Addressing the three elements of Insight, Compliance & Control, and Efficiency is critical: The Treasury department’s emphasis is focused more on basic processing of transactions.

PwC view – Treasury needs to be able to proactively assist with the management of scare resources by engaging with the BVIGOV as a partner and providing real quality insight to support the key decisions that impact on the delivery of services

40



PwC


Final

Themes identified in relation to Financial Insight

Following our discussions with the Accountant General we have a number of observations about the provision of financial insight and these are set out opposite. We believe that little attention is given to this important area.

It is our view that unless these issues are addressed then the Treasury will continue to struggle to support effective financial management within the BVI and improve its performance from the lower end of the spectrum to accepted good practice.

Budgeting & Forecasting – it is encouraging that efforts have been made this year to start the process of introducing a medium term budget with a three year rolling profile. We also understand that the collection of monthly performance statistics is to be introduced shortly.

Comprehensive guidelines on the formulation of the annual budget and the in-year monitoring and reporting of actual expenditure against that budgeting are required. Controls do exist for a quarterly allotment of approved monies and any non-budgeted for expenditure must be approved by the Financial Secretary. However we believe that strengthened controls are required to monitor and report on variations from budgeted expenditure, both recurrent and capital expenditure, and take action where unapproved expenditure is incurred.

Forecasting and budgeting processes need to be improved. We suggest that a move to zero based budgeting would be of assistance, together with a more formal linkage of planned expenditure to policy outcomes and activities so that the success of public sector programmes can be planned and measured more effectively.

Processes should also be introduced for more formal in-year monitoring of the budget plan.

Management reporting – this is extremely limited and requires immediate attention. We understand that the Accountant General has recently obtained approval for the establishment of a new Accounting & Reporting Unit within the Treasury and steps are in hand to recruit staff. The primary responsibilities of this new unit include fund reconciliation, monthly reporting and the preparation of annual accounts. This is a welcome step and should be pushed through quickly.

Management Information appears to be very limited. The introduction of a new chart of accounts may help capture essential information but this requires development. There is a lack of commentary on the financial information produced (except for Auditor General comments in the final statements which are very late). Finally, a reasonably well balanced financial scorecard should be put in place allowing senior management to track financial outcomes and link these to the key drivers of performance operationally. Risk management should be introduced and linked to the balanced scorecard.

41



PwC


Final

Themes identified in relation to Financial Insight

Observations (cont’d)

Business Analysis – due to the concentration on managing day to day transactions there is limited attention given to business analysis, for example understanding the cost of delivery of services. The Treasury function should have the capability to develop such analysis and provide it to Ministries to assist them with formulating their strategic financial plans.

Additional comments:

• There is a perceived lack of reliable and timely financial and management information (or staff don't always know where to get it) to support decision making.

• The Treasury and Ministries have to balance the competing priorities of externally imposed decisions and internal management of the delivery of services.

• Extensive time can sometimes be spent in following due process with little real outcome or benefit.

• Performance measures, including financial KPIs, either do not exist or are not always aligned to the business.

• There is little use of financial benchmarking to track performance.

• There is little evidence of costing the provision of services or understanding the key cost drivers.

• As already noted there is inconsistent monitoring and variance reporting of actual expenditure against forecast and budget.

• Senior management are reported to not be sufficiently engaged in the budget setting and planning process.

42



PwC


Final

Themes identified in relation to Compliance & Control

We discussed with the Accountant General a number of general themes relating to how well the Treasury managed compliance with the financial regulations, the management of risk, and ensuring that an effective internal audit regime is in place.

It is our view that whilst these themes are recognised as being important little real progress has been made in ensuring that good practice exists.

Unless these aspects are addressed quickly there is a danger that non-compliance will continue which has the potential to result in mis-management and mis-reporting of public funds, error or fraud.

Internal audit - this was raised in the OPM 2010 report as an area of concern and it remains so in this report. We understand that progress has been made in this area and the Internal Audit function is now a separate department that reports directly to Cabinet.

However, we held discussions with the Acting Director of Internal Audit and reviewed the latest Audit Plan available as well as sample of recent audit reports. The auditing approach of this department can be improved as in our view Internal Audit should have a clearly defined role integrated with public sector wide risk management, governance and control initiatives.

It should provide assurance to Cabinet, the Ministry of Finance and the citizenry on all aspects of compliance and monitoring of the internal control regime. It should play a fully active part in developing and enhancing internal control procedures, as well as carrying out value for money and other special studies on major projects prior to, during, and after completion.

The qualifications of the Internal Audit staff also need to be enhanced and a comprehensive audit methodology incorporating specialist attention on financial IT systems that are being developed and rolled out should be implemented.

Controls – Some control activities are in place but are not adequately documented. There is no comprehensive manual of Financial Instructions or Standing Financial Orders which would document the responsibilities of staff, rules, and processes to be followed.

Controls are therefore dependant upon people and ad-hoc instructions which are agreed in management meetings or issued from the Ministry of Finance from time to time.

As indicated in the subsequent page, improved controls over the safeguarding of cash is required.

We strongly recommend that a Financial Instructions manual be prepared to codify the internal control regime in accordance with the principles set out in the respective Financial Regulations and accepted good practice.

43



PwC


Final

Safeguarding of cash – There is a lack of proper controls or enforcement of controls over the collection and reporting of cash collected by revenue generating departments of the BVIGOV.

PwC view – The decentralized nature of cash collections by several revenue generating government agencies requires stronger internal controls over the safeguarding of cash, including daily reconciliations of cash received vs cash deposited in banks and reported to the Treasury department.

The decentralized cash collection, breaches in proper reporting of collections and deposits, prior misappropriations, and the fact that there are no Treasury personnel located within the various collection agencies to reconcile cash collections and deposits daily – or at least review these collections / reconciliations – suggest significant control weakness over the safeguarding of cash.

44



During our review of bank reconciliations and inquiries of internal controls over the safeguarding of cash, we noted that the cash balances are accurately reported and bank statement reconciliations are performed monthly in a timely manner.

However, there are certain long outstanding reconciling items in the bank reconciliations such as unpresented cheques dating back to 2002 for $494,000 that require clearance. These differences have likely contributed to the inaccuracies with various account balances and should be reviewed in detail and cleared.

Additionally, at December 2011 there was an Unallocated Deposit balance of $1.3 million in the Consolidated Fund bank accounts. This balance arose due to a repeated issue where a revenue collecting department, such as the Water and Sewage Authority, collected and deposits funds without informing the Treasury department. This poses a significant control risk over the safeguarding of cash. We understand this risk has materialized in prior years.

We were also informed by the Accountant General that there was a recent matter in 2012 regarding misappropriation of cash at a public entity in Virgin Gorda that is currently under investigation.

PwC


Final

Themes identified in relation to Efficiency

Whilst the basic processing of transactions is an area of strength for the Treasury Department there is a lack of basic financial disciplines which may result in the efficiency and quality of the department being compromised.

Material errors that have been identified should be resolved immediately so that the financial statements are not mis-reported.

General accounting – The Treasury has worked hard in recent months to develop a new standard chart of accounts for the recording and reporting of transactions. This is currently being implemented and will bring distinct improvements such as the ability to report economic analysis categories required by the IMF, and the recording of loan balances. This is a welcome development.

A monthly accounting calendar has been developed but it is fair to say that this has not been adhered to in a disciplined way. We understand that the Financial Secretary has issued instructions for prompt closure of the books of account. Adhering to a strict accounting timetable is one of the most basic financial disciplines and any deviation from it should be treated very seriously. Failure to lodge cash in the bank on a timely basis, failure to forward payment vouchers to the Treasury on a timely basis, failure to process monthly transactions on a timely basis, all will have serious implications for financial management and reporting.

Some basic financial accounting disciplines, such as the clearance of long outstanding items on bank reconciliations are not performed in a timely manner. Earlier this report has commented on issues which, in our view, are indicative of a poor culture of financial discipline. Such deviations from good practice would not be tolerated in any well run organization, public or private, and should be addressed immediately. We were informed that none of the personnel in the Ministry of Finance, including the Treasury department, are qualified accountants. Therefore, the current capabilities of the Financial Reporting team may be insufficient to effect the urgent and substantial remedial actions required to improve the financial reporting process – especially reducing the current time take to produce final accounts from in excess of 12 months to 4 months, without additional support.

We appreciate that a previous recommendation was made to move, in the medium term, to accruals accounting. Our view is that such a move at this stage would be inappropriate as the underlying financial processes, accounting knowledge and experience, and related controls are simply not strong enough to support the more complex system of accruals accounting. An interim step might be to introduce some form of commitment accounting, and use this as a tool to educate users, and smooth the way for an eventual transition to accruals.

45



PwC


Final

Themes identified in relation to Efficiency

Observations (cont’d)

General accounting continued – Experience in other jurisdictions with the move to accruals has been somewhat mixed with a failure to fully understand the benefits accruals accounting delivers and as a result a continued short term focus on the management of cash.

Financial systems – A great deal of work has been completed to upgrade the financial management systems to a more modern version. We understand that two system programmers remain with the Treasury to continue to develop the system and correct errors and problems as they arise. We are informed that at the end of January 2013 work will commence on developing a suite of financial reports. Further initiatives include revisions and modifications to the financial feeder systems and interfaces.

Concern has been expressed at the lack of basic systems documentation for some of the older financial systems, such as the TMS bank reconciliation system. This complicates systems maintenance and makes any development more difficult. We welcome the Treasury decision to move away from these older systems when practicable and utilize the functionality available as standard inside the JD Edwards ERP system.

Additional comments:

•The many unresolved accounting errors, some of which we understand date back many years, should be resolved without delay and adjustments made to correct the books of account.

•Every effort should be made to close off the financial year end and complete the audit of the year end accounts within a reasonable timescale, certainly no more than 3 months after the year end date.

•All revenue due to the BVI Government as receivables should be collected by the date when it falls due. All cash received should be accounted for promptly and banked immediately upon receipt.

•All payment vouchers must be provided to the Treasury within 48 hours of the product being received.

46



PwC


Final

Themes identified in relation to Enablers

The Accountant General has recognised the need for a suitably trained, skilled and experienced staff. The staff are generally enthusiastic but their training and development needs must be urgently addressed if the performance of the Treasury is to be improved substantially.

Treasury Vision – It would be very helpful for the Treasury Department to have a documented business plan which sets out how it sees its vision for the management of finance both within the Department itself and also across the government organizations. The Accountant General with the support of the Deputy Financial Secretary should continue to actively promote the role of the Treasury Department and the importance of what it is trying to achieve.

Organizational structure – The Accountant General has developed an organizational structure which she believes is best suited to the needs of the business. This is still a work in progress and needs to be developed further in conjunction with the views of the deputy Financial Secretary. Of particular note is the proposed Internal Control/Compliance Unit and the provision of business analysts and IT technical support staff within the administration unit.

Job descriptions are still being written and have yet to be finalized and agreed. Once completed these should be used to inform the overall assessment of skills and training needs as well as used to direct staff in their roles and responsibilities, and support the introduction of a more rigorous approach to performance management. Additional technical resources may be required to help prepare these job descriptions and business plan given the day-to-day needs of the department.

Talent management – one difficulty the Accountant General has is in the recruitment of appropriately trained, skilled and experienced staff. We understand there is no formal process for talent management within the Treasury Department. We strongly recommend that a Training Needs Analysis is carried out as a matter of urgency to assess the developmental needs of staff to enable them to perform their jobs effectively and efficiently. Given that the unit is small there is also a need to ensure that job roles are flexible and inter-changeable to provide sufficient cover in the event of absence, sickness etc. We also suggest that a competency framework is developed so that the required competency sets are matched to the staff available.

Career expectations/Succession planning – It is often the case that it is difficult to recruit people into finance as they wish to pursue a more varied career path or perceive that the opportunities for advancement within finance are limited. The Ministry of Finance could assist the Treasury Department by actively promoting finance as a good place to work.

47



PwC


Final

Recommendations and Suggested Next Steps

48


7.1 Recommendations and Suggested Next Steps

PwC


Final

Recommendations for Immediate Action

49



1. Timeliness of Financial Reporting: The entire end to end process for the preparation of the BVIGOV’s financial statements require urgent review and improvement, including more proactive collaboration between the Accountant General and Auditor General. A formal accounting timetable should be strictly enforced by the FS for both month-end and year-end accounting closure procedures, and a plan for completion of he annual audits agreed with the Auditor General. The FS should issue a formal instruction to the Accountant General and Auditor General regarding the required timetable. This remedial action is critically required for the BVIGOV to achieve its goal of improved Public Sector Financial Management.

2. Audited financial statements: In order to effect the submission of final, audited financial statements within a more reasonable timeframe, consideration should be given to amendment of the relevant legislation (such as the Audit Act) to mandate the submission of audited accounts to the FS and Minister of Finance within a specified period of time . However, such an amendment should only go into effect after the aforementioned suggested reconciliations, accounting clean-up, process improvement, communication protocols, enforced timetables, and training of financial reporting personnel in the Treasury have been implemented. Best practice (in the UK public sector and otherwise) requires the publishing of final audited accounts within three to four months after year-end.

3. Accuracy of Financial Reporting - Fund Balances: A remedial accounting exercise should be conducted to investigate, reconcile, and correct all historical Fund balances in order to present rolled-forward balances that can be agreed to or reconciled to actual cash balances that are available for expenditure, and that reflect the actual net fiscal status of the BVIGOV.

4. Accuracy of Financial Reporting - Other Account Balances: A remedial accounting exercise should also be conducted to investigate, adjust, reclassify or eliminate each asset balance that cannot be substantiated or does not represent a proper asset from which economic benefit can be realized in the future, as well as each reported liability balance that is not representative of an obligation to be paid by the BVIGOV.

5. Presentation of Net Fiscal Position: The Statement of Assets and Liabilities should be restated to include public debt, commitments not yet paid at year-end (including pending litigation where payment is probable and can be estimated), contingent liabilities, and fixed assets owned by the BVIGOV (when identification and valuation of these assets is completed). These amounts should be included on the face of the Statement as well as in the footnotes of the accounts where further detail of the composition of these balances should be provided.

6. Completion of the Final 2010 and 2011 Audited Accounts and Annual Reports: The 2010 and 2011 Audited Accounts and Annual Reports should be completed as a matter of urgency and items #2 through #5 should be considered when completing these accounts to ensure the opening balances of the 2012 accounts properly reflect these items. A clear finalization plan and protocols between the Accountant General and Auditor General should be agreed and implemented based on instructions from the FS and Minister of Finance.

PwC


Final

Recommendations for Immediate Action (continued)

50



7. Review of contingent liabilities: A detailed review of each loan guarantee should be conducted from an accounting perspective to determine whether these amounts should be included on the face of the Statements as a BVIGOV liability under international accounting standards. Additionally, the viability of each state entity for which debt was guaranteed by the BVIGOV should be analyzed in detail on at least a quarterly basis including a review of the entities’ monthly net cash flows (historical and forecasted). This analysis should be included in the FS’ quarterly accounting package to continuously assess these entities’ ability to service their debt through maturity, and the likelihood of any calls for payment from the BVIGOV.

8. Controls over Development Expenditure: Improved internal controls and fiscal discipline over Development Expenditure is required as development expenditure has historically exceeded budgeted amounts, supplemental appropriations and re-votes have been significant, and deficit financing of this expenditure has occurred where expenditure has exceeded the operating surpluses available.

9. Strengthening of Controls over Revenue/Cash Collection: Certain revenue collection agencies do not report cash collected and deposited to the Bank to the Treasury Department in a timely manner. As a result, deposits are made to the Bank and Treasury is unaware of the source of the deposits until a reconciliation of the bank statements is conducted and inquiries are made. This is a severe control weakness and daily reconciliations of cash collected vs. cash deposited should be conducted at each revenue collection agency. All cash collected should also be deposited and accounted for within 24 hours. The FS should issue stern instructions surrounding the processes to be followed over cash collection and the consequences of non-compliance. Support and approval should be provided to introduce an internal compliance unit within the Accountant General’s department to help improve these controls, which would be separate from the Internal Audit department that reports to Cabinet.

10. Awarding of Major Contracts on a Sole Source Basis by Cabinet: Although the current legislation provides an exception that allows Cabinet to award Major Contracts directly without tender, this practice became the norm and not the exception during 2011 – with no basis or rationale documented for waiving the tender process. A clear basis for the award of Major Contracts on a sole source basis should be agreed upon by Cabinet (and the wider House of Assembly as necessary) and all such decisions for award should be based on this clear and agreed rationale for sole selection. Over the longer term, the BVIGOV should consider amending the Public Finance Management Act regulations to include this basis for award of Major Contracts on a sole select basis. documents as evidence that a proper and transparent process was followed.

11. Strengthening of Major Contract Award and Payment Controls: The control weaknesses and poor practices identified during our examination should be immediately ceased or rectified with strong disciplinary action taken where necessary including (i) signing of contracts before Cabinet approval; (ii) awarding of contracts for expenditure that was not budgeted for; (iii) splitting of contracts without a clear documented basis as well as adequate oversight in place for the monitoring of service delivery by several contractors; (iv) issuance of payments to vendors without proper approval or without a contract; and (v) the non-retention of key tender documents. Additionally, all contract payments in JDE should include a field with the contract number as a reference number to enable verification of amounts paid vs. the contract amount,

PwC


Final

Recommendations for Immediate Action (continued)

51



12. Further investigation of certain contract awards : The scope of our Major Contracts examination was limited to contracts issued during 2011 and the procedures previously outlined. However, based on our initial findings we believe further investigation of the facts and circumstances surrounding the prior and current New Peebles Hospitals contracts should be conducted given the fact that $63 million has been spent on this project to-date, and $95 million in loans was raised by the BVIGOV to fund construction that is not yet completed five years after work commenced.

Further investigation into the award of a contract to Electronic Solutions for the Supply and Installation of Closed Circuit Television directly by Cabinet should also be conducted. The Public Tenders Committee recommended the award of the contract to another bidder - Infinite Solutions, whose contract bid was at a lower cost than Electronic Solutions’ bid. Infinite Solutions’ overall evaluation score by the Committee was also the highest of the three bids received. It appears that Cabinet did not accept the Committee’s recommendation as the contract was awarded to Electronic Solutions. We also noted that the eventual $308, 682 amount included in the signed contract with Electronic Solutions was also $99,699 lower than this vendor’s bid amount of $408,381.

An investigation into the nature and eventual recipients of approx. $950,494 and $988,630 in unallocated costs for the Construction of North South Alternate Road Infrastructure Network and the Anegada Road Infrastructure Development projects should also be conducted.

13. Accounting Support / Project Management Office: We understand an exercise to send personnel on accounting training and pursuit of accounting qualifications has been initiated by the Ministry of Finance. However, it is important to note that training and completion of accounting qualifications by Treasury personnel will not be sufficient to complete all of the remedial actions identified herein in a timely and high quality manner.

The Ministry of Finance should consider engaging a small team of outsourced accounting support (in the form of a Project Management Office) to work alongside the Accountant General and Treasury personnel to assist with completion of the necessary improvement and “clean up” actions, and to transfer accounting knowledge. After this clean up is complete, including the introduction of commitment accounting and embedding of improved basic accounting and financial discipline in the department; then we suggest the transition to accrual based accounting in accordance with international standards should be fully implemented.

PwC


Final

Recommendations for Short-Term Action (suggested completion within 3 to 6 months)

52



14. Compilation and Valuation of Fixed Assets: Additional resources (personnel time and funds to engage valuators), focus, co-ordination between the Ministry of Finance and other Ministries, leadership support, and priority should be assigned to complete the current initiative to identify, list, value, and account for the Fixed Assets (Land, Buildings etc) owned by the BVIGOV.

15. Procurement Unit Resources & document retention: An assessment of the resource needs and capabilities of the Procurement Unit to effectively manage the tendering of contracts in an expeditious but transparent manner should be conducted. This exercise is particularly needed as the number of Major Contract awards more than doubled from 16 in 2008 to 34 in 2010, and 27 in 2011. Additional resources and training of personnel should be afforded to this department and the increasing trend of bypassing this department and the public tendering process should be reversed. Additionally, the retention of all tendering documents throughout each step of the tendering process requires improvement including the use and retention of the Public Tenders Committee Evaluation form. A checklist of each required document throughout each stage of the tendering process should be utilized and signed off, and included on the front of the files retained for each publicly tendered contract.

16. Budgeting & Forecasting: Improved controls are required to monitor and report on variations from budgeted expenditure, both recurrent and capital, and to take action where unapproved expenditure is incurred. A move to zero based budgeting would also be of assistance, together with a more formal linkage of planned expenditure to policy outcomes and activities so that the success of public sector programmes can be planned and measured more effectively. Processes should also be introduced for more formal in-year monitoring of the budget plan.

17. Management reporting: Management information and analysis is very limited. Approval, as well as internal and external support, should be provided to the Accountant General for the implementation of the proposed Accounting & Reporting Unit. There is also a lack of commentary on the financial information produced (except for Auditor General comments in the audited final statements which are very late) and narrative should be included in the aforementioned quarterly accounting package suggested in the immediate actions. Finally, a reasonably well balanced financial scorecard should be put in place allowing senior management to track financial outcomes and link these to the key drivers of performance operationally. Risk management should also be introduced and linked to the balanced scorecard.

18. Transition to accrual based accounting: We appreciate that a previous recommendation was made to move, in the medium term, to accruals accounting and this is a key element of the goal of improved public sector financial management. Our view is that such a move at this stage would be inappropriate as the underlying financial processes, accounting knowledge and experience, and related controls are simply not strong enough to support the more complex system of accruals accounting in accordance with an international standard. An interim step might be to introduce some form of commitment accounting (such as the Restated Net Fiscal position presented herein), and use this as a tool to educate users together with external/outsourced accounting support, training, and knowledge sharing , to smooth the way for an eventual transition to accruals. A documented methodology or manual should also be put in place and training conducted before implementation of full or modified accrual based accounting to ensure consistency and propriety of all accounting entries.

PwC


Final

Recommendations for Medium-Term Action (suggested completion within 6 to 9 months)

53



19. Treasury Business Plan: The Treasury Department should prepare a documented business plan which sets out how it sees its vision for the management of finance both within the Department itself and also across the government organizations. The Plan should also include an implementation plan for achieving the vision with defined timelines. This Plan can be informed by the findings included in this report and the OPM report, including actions currently in progress.

20. Department Organizational Structure: Ministry of Finance support, focus, and resource assistance should be provided to the Accountant General for completion and approval of a revised organizational structure for the department including the proposed Internal Control/Compliance Unit, the provision of business analysts, and IT technical support staff within the department. Job descriptions should be completed and these should be used to inform the overall assessment of skills and training needs as well as used to direct staff in their roles and responsibilities, and support the introduction of a more rigorous approach to performance management.

21. Talent management: We strongly recommend that a Training Needs Analysis is completed (as we understand the Ministry has initiated an exercise to send personnel on training) as a matter of urgency to assess the developmental needs of Treasury staff to enable them to perform their jobs effectively and efficiently. Given that the unit is small there is also a need to ensure that job roles are flexible and inter-changeable to provide sufficient cover in the event of absence, sickness etc. We also suggest that a competency framework is developed so that the required competency sets are matched to the staff available. However, as this exercise is a longer-term solution to the Treasury department’s capability needs this assessment and pursuit of training should be conducted simultaneously with the introduction of an accounting support team / Project Management Office.

PwC


Final

Supporting information

54


Supporting information 54

8 Proforma Statement of Affairs 55

9 Compliance with Protocols for Effective Financial Management 60


PwC


Final

Fixed Assets are excluded from the Government’s Statement of Assets and Liabilities. Management should complete the compilation of a listing of the Government’s major fixed assets and obtain valuations for these assets.

PwC Adjustments

! Fixed Assets not reported

Historically, the BVIGOV accounts have not included Fixed Asset balances in the Statement of Assets and Liabilities. This exclusion of Fixed Assets results in the Government’s assets being under-reported.

The current value for Government’s fixed assets are unknown.

In FY2010, an exercise was initiated by the Ministry of Finance to identify all fixed assets of the Government. We held discussions with the Policy Analyst who was responsible for this exercise and it was stated that staff from the Procurement Unit assisted with the preparation of the inventory of all assets for each government department.

As at the date of this report, a partial listing of fixed assets for various Government ministries, departments and agencies has been compiled, however no values have been ascribed to any of these assets. Significant additional resources would be required to complete this exercise.

@ IPOC Investigations

This relates to a settlement received by the BVI Government subsequent to the conclusion of a court matter between the BVI Government and Bermuda Government against a third party company. The monies received for this settlement are held in cash and was inaccurately recorded in Other (Miscellaneous) Deposits which is a “liability” account. This resulted in an overstated of the Government’s liabilities and as such this adjustment represents the increase in Net Assets as a result of the removal of these amounts from liabilities.

55


8 Proforma Statement of Affairs

!

@

BVI Gov Proforma Statement of Affairs

Restatements to Reported Assets & Liabilities: 2008 to 2011








Proforma adjustments

Add: Fixed Assets not reported NQ NQ NQ NQ

Add: IPOC Investigation balance 22,911,737 12,911,737 12,911,737 12,911,737

Add: Insurance Receivables reclassified 3,581,505 3,810,803 3,962,851 5,386,117

Less: Insurance Payable reclassified (3,581,505) (3,810,803) (3,962,851) (5,386,117)

Less: Inclusion of Public Debt (72,008,782) (134,251,314) (126,713,341) (113,473,556)

Less: Inclusion of Year-End Commitments

(Unrecorded Liabilities) (1,958,564) (902,492) (2,562,425) (7,411,139)

Less: Provision for Litigation NQ NQ NQ (1,786,274)



and PwC Analysis

Note: Net fiscal position presented excludes Land, Buildings and other fixed assets owed by the Government


Loan Guarantees (28,191,949) (23,491,717) (23,140,726) (21,306,990)


PwC


Final

PwC Adjustments

# Reclassification of Insurance Payables

Other (Miscellaneous) Deposits include Insurance Receivable balances as a payable. Management represented that this account reflects insurance payments on behalf of employees by the BVIGOV that are recovered through salary deductions. However, this account was in a receivable balance at each year end examined, indicating that the Government did not recover these payments from all employees at year end. Management represented that the receivable position primarily relates to payments made on behalf of BVIHSA employees.

These receivables should be regularized immediately to avoid the continuous growth in this balance which could lead to amounts becoming uncollectible. The adjustments to these balance represents the reclassification of negative payable balances to a receivable.

56



Insurance Receivable balances have been inaccurately recorded as a liability. These amounts should be reclassified to Government assets and should be monitored to ensure collection.

# #





















and PwC Analysis



Loan Guarantees (28,191,949) (23,491,717) (23,140,726) (21,306,990)


PwC


Final

PwC Adjustments

$ Inclusion of Public Debt

The Government’s Public Debt has traditionally not been reported on the face of the annual Statements, however this balance is reflected as a note to the financials, i.e. it does not form part of the Statement of Assets and Liabilities.

Public Debt represents significant cash inflows obtained by the Government from various lending agencies to fund specific projects. This Public Debt is a material contractual obligation of the Government and as such should be factored in determining the BVIGOV’s net fiscal position. Consequently, we have included the annual reported Public Debt in the Proforma Restated Statement of Assets and Liabilities.

The increase in Public Debt from $72 million at December 2008 to $134 million at December 2011 was primarily due to loans taken out in FY2009 amounting to $60 million and $4.7 million for the New Peebles Hospital Project and Supply of Greenhouses respectively, offset by loan repayments made between FY2010 and FY2011.

It is important to note that the value of any fixed assets infrastructure that was acquired or constructed using this debt financing is currently unknown. The inclusion of such assets in the Proforma Statements will reduce the net fiscal deficits.

57



Public Debt, which is the single largest liability of the Government, has historically been excluded from the Government’s Statement of Assets and Liabilities

$





















and PwC Analysis



Loan Guarantees (28,191,949) (23,491,717) (23,140,726) (21,306,990)


PwC


Final

PwC Adjustments

% Inclusion of Year-End Commitments (Unrecorded Liabilities)

At the end of each financial year, all unpaid Purchase Orders (Pos) are closed off within the JD Edwards System and payments against these POs are not possible in the system. This process effectively removes the liabilities from the current financial period. All unpaid Purchase Orders are re-created in the subsequent financial period, with approval granted from the Ministry of Finance, and paid in that year. As a result the expense is recognized in the new financial period.

However, although these POs are “closed” the commitment to the vendors and related financial obligations existed at year-end. Therefore, we have included this obligation in the Restated Statement of Affairs.

Note: This adjustment/inclusion may not capture all commitments not yet paid. We noted that December payroll was paid during the month of December, however, other expenses may need to be included in this balance if full accrual accounting is implemented and a detailed expense audit is conducted.

58



There are a number of year-end commitments/liabilities which are excluded from the Government’s Statement of Assets and Liabilities

Forensic Investigation into certain practices, policies, and internal controls at the College. Forensic Investigation into certain practices, policies, and internal controls at the College.

%





















and PwC Analysis



Loan Guarantees (28,191,949) (23,491,717) (23,140,726) (21,306,990)


PwC


Final

PwC Adjustments

^ Provision for litigation

This adjustment relates to litigation proceedings brought against the Government. Based on a listing provided by the Attorney General’s Office, potential liabilities at the end of FY2011 totalled $1,786,274.

These potential liabilities were determined based on whether judgements were already made against the BVIGOV in court matters and outstanding amounts were due at December 2011; or court matters where the Attorney General’s office expected judgement to be in favour of the claimant and an expected payout amount was provided.

& Contingent Liabilities

The Government’s contingent liabilities include:

Loan guarantees which were provided to BVI Electricity Corporation, Development Bank of the VI and the Scholarship Trust Fund Board. The Government assists these statutory bodies with securing loans by standing as guarantor for the outstanding loan balances. Therefore, in the event these bodies are unable to meet their debt commitments, the Government will have to honour these liabilities. As such the Government needs to be continuously mindful of the outstanding loan balances for these bodies, their respective risk weightings per the Protocols for Effective Financial Management, and the entities ability to service the debt.

As at the end of FY2011, loan guarantees totalled $21,306,990. These liabilities will need detailed accounting review to determine whether an accrual is required on the central government’s books. However, we have presented the balances for information purposes and consideration when assessing the BVIGOV’s net fiscal position.

59



Provisions for litigation and loan guarantees are excluded from the Government’s Statement of Assets and Liabilities.

^

&





















and PwC Analysis



Loan Guarantees (28,191,949) (23,491,717) (23,140,726) (21,306,990)


PwC


Final

Compliance with Protocols for Effective Financial Management

60


9 Compliance with Protocols for Effective Financial

Management Glossary Appendices Supporting information Executive report At a glance – our views

PwC


Final

The BVI Government has to continuously monitor its compliance to the Protocols for Effective Financial Management signed with the BVI’s Government

The ratios as per the Protocols for Effective Financial Management are:

• Net Debt: 80% (of annual revenue) maximum;

• Debt Service: 10% (of annual revenue) maximum; and

• Liquid Assets: 25% (of annual revenue) minimum

Net Debt: is defined as the total outstanding value of Government debt and risk-weighted government-guaranteed debt, minus liquid assets (We understand that only the Reserve Fund is considered to be liquid assets based on the definition of liquid assets below)

Debt Service: is defined as the debt-interest and scheduled principal repayments of Government debt. This measure does not include the debt service of government-guaranteed statutory authority debts.

Liquid Assets: are defined as the lowest total balance of unallocated liquid funds at the disposal of the Government of the Virgin Islands during the fiscal year. These funds should not be held against budgeted expenditure or liabilities of any form.

We assessed GVI’s annual loan portfolio against the above criteria to determine whether the GVI is in compliance with the Statement of Agreed Borrowing Procedures as shown below.

This assessment is illustrated on the following pages.

61



Management







(Sea Defense) 1,485,828 1,301,881 1,117,849 1,062,083


2,131,200 - -







Beef Island Airport


Scotia Bank 1,218,760 941,974 671,142 389,731




Development 9,848,116 6,682,912 6,075,375 5,315,828



Banco Popular - 45,000,000 45,000,000 44,250,000


Total 72,008,782 134,251,314 126,713,341 113,473,556



PwC


Final

• Net Debt: 80% (of annual revenue) maximum

The table above shows that the annual Net Debt, and its percentage to annual revenues. As shown above the Net Debt increased significantly in FY2009 due to two additional loans amounting to $60 million raised to fund the construction of the new hospital. The low Liquid Assets balance of the BVIGOV, may result in significant exposure to the BVIGOV as its liquid assets could hardly cover its loan portfolio. This exposure decreased over FY2010 and FY2011 as repayments were made to loans and the GVI’s liquid assets improved.

We were not provided with details of the current portion of the loan balances.

However, the Net Debt of GVI as a percentage of annual revenues , over the Review Period showed that the Government has remained below its maximum threshold of 80% of annual revenue, with FY2009 recording the highest ratio of 52% as a result of the sizeable loans taken out in that year.

62



Management

Net Debt

FY2008 FY2009 FY2010 FY2011

Public Debt and Risk Weighted

Gov't Guarantees 79,047,287 140,221,214 132,490,993 119,055,290

Liquid Assets (Reserve Fund) 1,337,514 1,373,589 1,399,791 7,446,751

Net Debt 77,709,773 138,847,625 131,091,202 111,608,539

Annual Revenue 278,580,199 268,644,829 272,960,807 287,479,526

Net Debt Ratio % 28% 52% 48% 39%

The Government has remained below the net debt threshold of 80% and debt service ratio of 10% but liquid assets are significantly lower than the 25% minimum requirement

• Debt Service: 10% (of annual revenue) maximum

As shown in the table above, GVI has kept within their 10% maximum debt service ratio over the Review Period.

• Liquid Assets: 25% minimum

As shown in the table above, the GVI has not maintained their 25% minimum requirement of liquid assets as a percentage of recurrent expenditure for the Review Period. As a result the BVIGOV is not in compliance with the Protocols for Effective Financial Management executed with the UK Government in 2012.

We were not provided with details of the terms and conditions of the BVIGOV’s loans to determine whether any loan covenants were breached or whether any reporting requirements exist. A detailed review of the Government’s debt portfolio and detailed terms was not part of our scope.

Debt Service

FY2008 FY2009 FY2010 FY2011

Annual Revenue 278,580,199 268,644,829 272,960,807 287,479,526

Annual Debt Service 3,499,990 3,892,400 7,699,592 13,239,785

Debt Service as a % of Revenues 1% 1% 3% 5%

Liquid Assets

FY2008 FY2009 FY2010 FY2011

Annual Expenditure 248,352,177 253,665,085 256,396,051 251,006,071

Liquid Assets (Reserve Fund) 1,337,514 1,373,589 1,399,791 7,446,751

Liquid Assets as a % of Annual

Expenditure 1% 1% 1% 3%

Source: Ministry of Finance and PwC Analysis




PwC


Final

Management of Public Debt is of critical importance and the Government is limited in the amount of funds it can generate through loans. The table below illustrates the annual reported public debt of the Government as a percentage of its reported total assets:

The debt ratio indicates the proportion of debt the Government has relative to its assets (excluding fixed assets). As shown in the table above, in FY2008 the debt ratio was in a positive position as the Government’s total assets (excluding fixed assets) covered its debt liabilities. However the debt ratio deteriorated significantly from FY2008 to FY2009 where the Government’s total assets cannot cover its debt-load as the Government has taken on more debt (primarily to fund construction of the new hospital) than it is currently able to sufficiently cover. The debt ratio has not shown any significant improvement as at the end of FY2011.

Government needs to manage its debt portfolio going forward and seek to minimize its exposure. This exposure is particularly heightened as the Government is also a guarantor for a number of loans issued to other state agencies.

63



Management

Debt Ratio

FY2008 FY2009 FY2010 FY2011

Public Debt 72,008,782 134,251,314 126,713,341 113,473,556

Total Assets (excluding Fixed Assets) 85,124,378 49,164,877 44,282,816 57,462,309

Debt Ratio 0.8 2.7 2.9 2.0

Public debt as at 31 December 2011 is approximately twice the value of reported assets (excluding fixed assets values) and a clear debt reduction plan is required to minimize this fiscal exposure



PwC


Final

Appendices

64


Appendices 64

1 Reported Assets & Liabilities 65

2 Reported Income and Expenditure 82

3 Recurrent Revenue Analysis 84

4 Recurrent Expenditure Analysis 86

5 FY2011 Abstract Statement 89

6 Year-end Commitments / Unrecorded Liabilities 90

7 Litigation Listing 91

8 Major Contracts awarded in FY2011 92

9 Listing of Contract Payments 94

10 Outstanding Audit Requests 95


PwC


Final

Cash and Investments are monitored and managed by the Government on a real time basis online and via monthly review and reconciliation of bank statements

The adjacent table illustrates the reported financial position of the Government of the British Virgin Islands (GBVI) for the past four (4) years ended 31 December 2008 to 31 December 2011.

Based on discussions with management and our review of the annual audited and unaudited accounts (including the Auditor General’s and Accountant General’s Report comments), we have summarized our understanding of the individual financial statement components as follows:

Assets

! Cash and Cash Equivalents

Cash and cash equivalents include operating accounts, money market accounts and certificates of deposits held at both local and overseas Banks namely Banco Popular, First Bank, National Bank of the Virgin Islands, First Caribbean Bank, Scotia Bank and Crown Agents in London.

Operating and money market accounts are used for Government’s operational and capital expenditure while certificates of deposit are investments, approved by the Finance Minister, to attract higher interest income.

Based on a cash and investment analysis provided by management, we noted that each facility is monitored and managed based on the Bank with which the facility is held and Fund to which it is allocated.

However, there is no reconciliation of cash and Fund balances for several Funds, including the Development Fund in particular, therefore several Reported Fund balances were incorrect.

65


1 Reported Assets & Liabilities

!




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

Investment facilities are monitored by the Treasury Department for accuracy via monthly reconciliations and via year end confirmations circulated to all financial institutions

Assets


Each cash and investment facility is allocated to one of the following four (4) Funds:

• Consolidated Fund; • Development Fund; • Reserve Fund; and the • Contingency Fund.

There are specific bank statements for each of these funds however there are no bank statements for the other seven Funds presented in the annual accounts.

These above funds are discussed within the “Fund Balances” section.

Comfort is gained by the Treasury department on the accuracy of the Cash balances through monthly bank statement reconciliations and reviews performed by the Treasury Department, including bank confirmations which are circulated to all financial institutions during the annual year end audit. Investment accounts are monitored throughout the year and also confirmed during the annual year end audit. The Treasury Department also has online access to accounts held in Banco Popular, First Bank, First Caribbean Bank and Scotia Bank to monitor activity and bank balances real time.

Review of Bank Reconciliations

Our scope included a review of Bank Statements and Bank Reconciliations for the period 31 December 2010 to 31 December 2011 for irregular activity and comparison to cash balances reported by the BVI Treasury. For completeness, as an extension of our scope, we also reviewed Bank Reconciliations at December 2008 and December 2009.

66



!




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

Management prepares monthly Bank Reconciliations on a timely basis thereby minimizing the occurrence of errors and irregularities with reported cash balances

Assets


Review of Bank Reconciliations Findings

There are 13 accounts held at 4 banks for the Operating/Checking/Current accounts.

a) Monthly Bank Reconciliations were prepared for all operating accounts for the periods requested

b) Proper segregation of duties were applied as separate individuals were responsible for preparing and reviewing bank reconciliations. It was also noted that all Bank Reconciliations were signed as prepared and reviewed.

c) Bank Reconciliations were prepared by adjusting both the General Ledger Balance and Bank Account Balance to arrive at an adjusted reconciled balance.

d) Based on a comparison of the dates the respective:

i. Bank Statement is received;

ii. Bank Reconciliation is prepared; and

iii. Bank Reconciliation is reviewed.

It was noted that Bank Statements are generally received within a month after the month-end, and Bank Reconciliations are prepared and reviewed within a month after receiving the Bank Statement.

e) Each reconciling item within the Bank Reconciliations were supported by listings detailing the transactions that make up their respective balances.

67



The above table presents a summary of our analysis of all cash and investment balances that aggregates to the Cash and Cash Equivalents in the Reported Statement of Assets and Liabilities.

Our examination focused on the operating account bank reconciliations, as such our reconciliation review was performed on all cash accounts that make up the Total Operating/Checking/Current account (“operating accounts”) highlighted in the table above. We also reviewed bank statements and confirmations for all investment accounts for accuracy.

We obtained Bank Reconciliations for all operating cash accounts, for the periods noted within our scope, and reviewed them for the following:

• Timely preparation and review;

• Proper maintenance of listings to support reconciling items;

• Timely clearance of outstanding reconciling items; and

• Timely update of General Ledger accounts.

Source: Management Reports, PwC Analysis

Analysis of Cash at Banks and Investments


Cash

Total Operating/Checking/Current a/c 12,764,261 7,485,558 2,518,715 15,159,640

Crown Agent - Current Account 339,107 406,730 375,612 370,916

London Office - Tennant Escrow 63,916 71,900 67,978 47,374

HSBC - London Office 341,918 760,107 438,386 88,200

HSBC - Trust Account 79,044 3,743 3,538 3,563

Subtotal - Cash 13,588,245 8,728,037 3,404,229 15,669,693

Investments

Total Certificates of Deposit 54,473,321 33,707,038 33,754,197 34,426,853

Crown Agent - Fixed Deposit 1,305,000 1,467,000 1,386,000 1,395,000

Subtotal - Investments 55,778,321 35,174,038 35,140,197 35,882,286

Total 69,366,566 43,902,076 38,544,426 51,551,980


PwC


Final

Long outstanding items identified within the Bank Reconciliations should be investigated and appropriately cleared

g) The detailed listings for each reconciling item were analyzed and it was generally noted that transactions that make up these reconciling items were up-to-date, indicating that reconciling transactions are cleared within a timely basis. There were however some accounts where reconciling transactions were long outstanding and should be immediately investigated and appropriately cleared. These accounts were:

The untimely clearance of long outstanding items can result in the mis-statement of General Ledger accounts and not present a true representation of monies available to the Government. Also the longer transactions/items remain un-cleared, the more difficult it is to clear as its original purpose becomes uncertain over time. This non-clearance of outstanding items in the General Ledger has likely contributed to the incorrect Fund balances.

68



Source: Management Reports, PwC Analysis

General Ledger Adjustments

Bank Statement Adjustments

Deposits in Bank not recorded Deposits in General Ledger not cleared in Bank

Payments in Bank not recorded Un-presented cheques

Bank Reconciliation

Description Amount

Banco Operating a/c – G/L#1-11200

This General Ledger account includes prior years’ unpresented cheques dating back to 2002

33,172.21

Banco Checking (Capital) a/c – G/L#2-11317


494,634.19

First Bank Payroll a/c – G/L#1-11275


21,982.52

Assets


Review of Bank Reconciliations Findings (Continued)

f) We analyzed each reconciling item within each Bank Reconciliation and noted that the reconciling items generally seen as adjustments to the General Ledger and Bank Statement were as follows:

Analysis of Cash at Banks and Investments


Cash

Total Operating/Checking/Current a/c 12,764,261 7,485,558 2,518,715 15,159,640

Crown Agent - Current Account 339,107 406,730 375,612 370,916

London Office - Tennant Escrow 63,916 71,900 67,978 47,374

HSBC - London Office 341,918 760,107 438,386 88,200

HSBC - Trust Account 79,044 3,743 3,538 3,563

Subtotal - Cash 13,588,245 8,728,037 3,404,229 15,669,693

Investments

Total Certificates of Deposit 54,473,321 33,707,038 33,754,197 34,426,853

Crown Agent - Fixed Deposit 1,305,000 1,467,000 1,386,000 1,395,000

Subtotal - Investments 55,778,321 35,174,038 35,140,197 35,882,286

Total 69,366,566 43,902,076 38,544,426 51,551,980

Source: Bank Reconciliations and PwC Analysis

Source: Bank Reconciliations and PwC Analysis


PwC


Final

Treasury Management and the Auditor General represented that aged balances exist in the Other Advances account which should be investigated and appropriately cleared

Assets

@ Public Officers Advances

These advances relate to loans issued to public servants for medical purposes, vehicle purchases or special circumstances. Employees are required to sign a loan agreement with the Government for each loan issued. We obtained and reviewed a sample of loan agreements and compared these agreements back to the general ledger to confirm the accuracy of loan balances included in the financial statements. We noted that the employee advances loan agreements selected were properly authorised and reported in the general ledger.

All loan agreements are signed by either the Financial Secretary or Deputy Financial Secretary (on behalf of the Government); the Borrower; Guarantor of the Borrower; and witnesses for both the Government and Borrower.

These advances are repaid through automatic salary deductions and are monitored and managed by the Debt Management Accountant. Repayment amounts noted in the loan agreements were vouched to the general ledger for the selected employees, and repayments via salary deductions were observed for all the loan files reviewed.

Also included under Public Officers Advances are short term advances in the form of imprests to facilitate public officers and elected representatives travelling abroad on official business.

69



@




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

A detailed review of the Other Advances account is required to clean up and adjust old balances that may not represent collectible assets

Assets

# Other Advances

These advances relate to miscellaneous advances which are issued by the Financial Secretary(FS), which are accompanied with instructions on how they are to be cleared (usually through a supplementary appropriation or upon receipt of loan funds).

Other advances also arose from various operational anomalies such as returned cheques that were received from members of the general public. These cheques will be re-issued from this account.

Management and the Auditor General represented that there are a number of aged balances included in this account which should be investigated and appropriate action should be taken to have them cleared. A detailed review of these accounts was not included in our scope. We recommend such a review to clean up and adjust old balances that may not represent a proper realizable asset of the BVIGOV.

70



#




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

Postmaster Deposits are not reconciled by the Post Office regularly which can result in errors and irregularities going undetected for long periods

Assets

$ Current Accounts

Current accounts represent the net amount due from and owing to other Governments and Administrations. Included in this balance are pension allocations held for retired civil servants with service in the Virgin Islands as well as other territories; and balances for the Foreign and Commonwealth Office (FCO), the Overseas Development Administration (ODA) and the British Development Division.

Liabilities

% Postmaster Deposits

This account represents money orders purchased on behalf of other Caribbean countries, United States and United Kingdom post offices. Payments to these post offices are made annually. The Post Office currently uses SWIFT to capture all transactions and on a weekly basis, a report is sent to the Treasury Department to update the Postmaster Deposits in JDE.

The Auditor General represented that the balance within this account is not being regularly reconciled by the Post Office. We also held discussions with the Postmaster General who confirmed that no reconciliation is performed between the SWIFT system and JDE. This can result in errors and irregularities in this account going undetected for a long period. A detailed review of these accounts was not included in our scope. We recommend a system of reconciliation be implemented with the Post Office to ensure that balances within this account are accurately reported. The long outstanding balances within this account should also be investigated and cleared.

71



$

%




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

Other Deposits include a number of unclaimed deposits which require legislative direction or FS instructions to investigate and clear these amounts

Liabilities

^ Other (Miscellaneous) Deposits

Section 34 (1) of the Public Management Finance Act 2004 defines a “Deposit” as any monies, not being raised or received for the purpose of the Government, which has been deposited with the Accountant General or with any other public officer authorised by the Accountant General. The Act further provides that “Deposits” shall not form a part of the Consolidated Fund and shall not be applied for a purpose of Government. Interest derived from investment of funds in the Deposit Account can, however, be paid into the Consolidated Fund and applied for Government purposes.

We obtained and analyzed a detailed G/L listing of this account balance and noted that deposits into this account include but are not limited to monies collected by the Customs Department to secure Import Duties; Immigration Department for immigrant workers bonds; Magistrate’s Court for child maintenance; and Public Works Department for tender submissions etc. These all constitute legitimate deposit liabilities as the monies are not collected for use by the Government but are usually returned to the payer or passed on to a third party.

However, our analysis indicated, and the Auditor General confirmed in the footnotes to the audited statements, that there are several items in the Deposit Fund that do not qualify as “Deposits” as defined in the Act. According to the Accountant General and Auditor General, deposits also include a number of accounts with unspent balances which were transferred from the Consolidated Fund to deposit accounts so that the funds continue to be available for spending in subsequent years.

72



^




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

Other Deposits include a number of large balances which should be investigated and appropriately cleared

Liabilities


The existing legislation (Public Finance Management Act) makes no provision for dealing with inactive/abandoned deposits, therefore, an amendment is required either to the Public Finance Management Act or subsidiary legislation (or instruction from the FS) to state how unclaimed deposits are to be treated.

Based on our analysis and Treasury Management representations, it was also noted that in FY2011 this account included the following balances which should be investigated (if required) and appropriately cleared.

a) Unallocated deposits at Bank amounting to $1.3 million. This balance relates to deposits made directly to the Bank with no supporting documentation. Management represented that this occurs when revenue collecting offices/departments deposit monies into the bank but do not report these deposits nor its purpose to the BVI Treasury Department.

73



^

Account Balance

a) Unallocated Deposits (1,258,850)

b) IPOC Investigations (12,911,737)

c) Insurance Payable 5,386,117

d) Accounts Payable (Capital Fund) (1,351,427)

Other (Miscellaneous) Deposits (13,132,083)

Total (23,267,980)




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

Other Deposits also include a $12.9 million received from an IPOC dispute settlement which should not be accounted for as a liability

Liabilities


a) The amounts within this account should be immediately investigated and appropriately cleared. If there is continued difficulty in sourcing the supporting documentation for transactions, these transactions should be written to the Income Statement. A control process should also be implemented to cease or strengthen controls around this practice as cash could be mis-appropriated at the revenue collecting agencies.

b) A balance of $12.9 million under the account “IPOC Investigations” which relates to a settlement received by the BVI Government subsequent to the conclusion of a court matter between the BVI Government and Bermuda Government against a third party company. This balance is currently held in two Certificates of Deposit in the Consolidated Fund. In the 2012 Budget it was noted that $9.7 million of this balance should be transferred to the Development Fund, however as at the date of this report that transfer has not been made.

c) Deposits also include Insurance Payable amounting to $(5.4) million. Management represented that this account is used to make insurance payments on behalf of employees through salary deductions. However, this account was in a receivable position at the end of FY2011, indicating that more money was paid towards insurance than the Government had recovered from the employees at year-end. Management represented that this is a result of Hospital staff that have not been making payments towards insurance and the Government is currently making payments on their behalf.

74



^




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

The Accounts Payable (Capital Fund) should be reconciled to departmental capital income and expenditure accounts on a regular basis and reviewed by an authority within the Treasury Department

Liabilities


c) These receivables should be regularized immediately to avoid the continuous growth in this balance which could lead to amounts becoming uncollectible.

d) Accounts Payable (Capital Fund) amounted to $1.4 million. Management represented that this account represents monies owing to Government departments to fund their respective capital expenditure. Each department is expected to maintain a spreadsheet itemizing their capital income and expenditure to monitor and manage the use of funds they receive. Management represented that these spreadsheets were historically reviewed by the Treasury Department but this review no longer occurs. These departmental capital income and expenditure statements should be reconciled to this account on a regularly basis and reviewed by an authority within the Treasury Department to ensure the prudent and transparent use of Government Funds and to detect any errors or irregularities within this account.

75



^




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

The reported Consolidated Fund balance is incorrect largely because it includes budgeted amounts that are not reconciled and “trued up” for actual inflows, outflows and supplementary appropriation expenditure

Fund Balances

& Consolidated Fund

The Consolidated Fund was established under the Virgin Island Constitution Order 1976 (section 59). The Fund is comprised of all revenue and other monies received, raised or borrowed on behalf of the Government. Authority for withdrawal from this Fund must be in accordance with the Appropriation Ordinance and Supplementary Estimates.

The Consolidated Fund essentially supports the operating activity of the Government as monies received into the Fund are primarily used for expenditure on recurrent activity.

This Fund also supports other financing obligations, approved by the House of Assembly, through contributions or transfers to the other funds such as the Development Fund (used for capital expenditure).

The Consolidated Fund comprises a number of cash and investment (bank) accounts tied to the operations and activity of this Fund. However, the reported balance in this Fund does not represent the actual cash balances available for expenditure, at any point in time, due to the recording of budgeted balances in this Fund that are not adjusted to present actual balances.

76



&




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

The reported Development Fund balance of ($56.1) million is incorrect and requires urgent investigation and reconciliation to the actual cash balance of $12.7 million at December 2011

Fund Balances

* Development Fund

Capital projects undertaken by the Government are funded through the Development Fund. The Development Fund is legislated by the Public Finance Management Act 2004. The purpose of this Fund is to provide the necessary development for the economic and social advancement of the BVI. The Fund consists of:

a. Money appropriated by way of supply vote; and

b. Money received by way of grants or loan

i. for a specific development scheme, project or programme; or

ii. generally for the purpose of development.

Revenue recorded in the Development Fund primarily include transfers from the Consolidated Fund, loans from commercial banks and lending agencies, grants and other miscellaneous sources.

There are specific cash and investment accounts tied to this Fund however, due to budgeted amounts included in this account, the balance in this Fund does not reflect the actual cash balances and there is no reconciliation from the reported G/L or book balance presented of $(56.1 million) to the actual cash available of $12.7 million.

77



*




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

There are specific bank facilities tied to the Emergency Disaster Fund and the Reserve Fund. Historically the Reserve Fund did not reflect actual cash available, however, this was rectified at the end of December 2011

Fund Balances

( Emergency Disaster Fund

The Disaster Management Act 2004, which came into force on 15 May 2004, stipulates that the Fund is to be used towards recovery efforts and the adoption and promotion of preventative measures before, during and after a disaster emergency.

This Fund has specific cash and investment accounts tied to its operations, however, the $3.7 million balance actually represents budgeted amounts but no actual cash transfers to this fund occurred.

) Reserve Fund

The initial framework for the Reserve Fund was introduced in the 2002 annual budget estimates and subsequently legislated in sections 15 and 16 of the Public Finance Management Act 2004. The intent of this Fund was to create a separate and distinct account into which resources could be appropriated outside of the Consolidated Fund, for use in the event the Government experiences financial difficulties. This Fund is expected to assist the Government in achieving continued long term stability.

There are specific cash and investment accounts tied to this Fund however due to the aforementioned reporting of budgeted amounts in these Funds and the lack of reconciliation and a “true up” to actual cash balances, the reported balance in this Fund has been incorrect historically. However, at December 2011, management ensured that the Reserve Fund balance reflected the balance in the bank account of $7.4 million.

78



( )




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

As there are no bank facilities tied to either the Contingency Fund or Transportation Improvement Network Fund, expenditure related to the intended purpose of these Funds are effected by the Consolidated Fund.

Fund Balances

_ Contingency Fund

Section 5 of the Public Finance Management Act 2004 provides for a Contingency Fund to be financed by money appropriated from the Consolidated Fund. This Fund is intended to meet any urgent and unforeseen need for expenditure for which no other provision exists.

There are currently no cash and/or investment accounts tied to this Fund. The reported balance in this Fund solely relates to amounts budgeted or appropriated for transfer to this Fund but there are no cash balances for this Fund.

+ Transportation Improvement Network Fund

This Fund was established under the Transportation Network (Land, Sea and Air) Improvement Fund Act 1992 and came into force on 1 October 1992. It is intended to be used for the purpose of rebuilding and development of the major transportation network infrastructure in BVI. The Fund’s revenue should be generated from a fossil fuel surcharge collected by the Customs Department.

There are currently no cash and/or investment accounts or cash balances tied to this Fund. The balance in this Fund solely relates to prior budgeted or appropriated amounts.

79



_ +




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

The objectives of the Car Loan Revolving Fund, Debt Service Fund and Loan Revolving Fund are effected by the Consolidated Fund and there are no actual cash balances in these Funds.

Fund Balances

- Car Loan Revolving Fund

This Fund should reflect interest accrued on the advances issued to public servants for purchasing personal vehicles. Loan advances and repayment activity is reflected under “Public Officers Advances” and only interest is to be paid into the Car Loan Revolving Fund.

However, there were no cash and/or investment accounts or balances related to this Fund for the period reviewed. The cash balance at each of the years presented was actually zero.

= Debt Service Fund

This Fund was introduced to secure a separate provision for repayment of Public Debt. This Fund received an initial contribution or transfer of $100,000 from the Consolidated Fund in 2002 and has since remained inactive. Repayments of loans in the Public Debt continue to be made directly from the Consolidated Fund.

There were no cash and/or investment accounts tied to this Fund for the period reviewed.

{ Loan Revolving Fund

This Fund was set up to replace the system of providing loan assistance (advances) to public service employees from the Consolidated Fund. An initial amount of $100,000 was allocated in 2002 (but not transferred to any specific bank account) to establish this Fund. The balance has not changed and there has been no activity since that time. Loans to public servants are reflected under “Public Officers Advances”.

There were no cash and/or investment accounts or balances related to this Fund for the period reviewed.

80



- = {




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

The objectives of the Pension Fund and Repairs and Renewal Fund are effected by the Consolidated Fund and there are no actual cash balances in these Funds.

Fund Balances

} Pension Fund

The Pension Fund was established in 2002 to provide a separate account from which Government pensions would eventually be paid. The intent of this Fund was to make pension provisions for the Public Service. These amounts were to be reviewed by actuarial experts, and a revised pension system was to be implemented to manage this Fund. This proposed new system has not been developed and pension payments have continued to be made from the Consolidated Fund.

There were no actual cash and/or investment accounts tied to this Fund for the periods reviewed. The reported balance in this Fund solely relates to a prior year appropriation but no funds were actually transferred (in cash) to this Fund.

| Repairs and Renewal Fund

The establishment of this Fund was to meet expenditure for the repair or renewal of public stores or other Government property. There has been no activity in this Fund for the last four (4) years.

There are currently no cash and/or investment accounts or cash balances tied to this Fund.

81



} |




Assets


Cash at Banks 13,588,245 8,728,037 3,404,229 15,669,693


69,366,566 43,902,075 38,544,426 51,551,979



Other Advances 13,890,818 3,654,462 3,768,161 3,833,185


15,757,812 5,262,802 5,738,390 5,910,330


Liabilities



Other Deposits 29,087,641 19,197,986 21,523,155 23,267,980






Reserve Fund 5,557,414 5,593,489 5,619,691 7,446,751






Pension Fund 6,799,555 6,799,555 6,799,555 6,799,555







PwC


Final

Reported Income and Expenditure

82


2 Reported Income and Expenditure Glossary Appendices Supporting information Executive report At a glance – our views

PwC


Final

BVIGOV has generated positive operating surpluses in each of the last four years primarily attributed to significant revenues collected through the Financial Services Commission and recurrent expenditure remaining flat

@ Recurrent Revenues

Recurrent revenues have shown increases from FY2009 to FY2011 which was primarily attributed to increases in the Government’s core revenue earner, Financial Service Commission fees. The fees collected based on registration of companies, issuance of banking licences etc, have increased from $166.8 million in FY2009 to $182.2 million in FY2011.

# Recurrent Expenditure

Recurrent expenditure have shown increases from FY2008 to FY2010 with a reduction noted in FY2011. These expenditure movements were primarily as result of movements in the Water and Sewerage expenditure which showed steady increases of $3.1 million and $3.7 million in FY2009 and FY2010 respectively. In FY2011, a reduction in Water and Sewerage expenditure of $6.7 million was observed.

The movements in the Water and Sewerage account is mainly due to movement in the cost of purchase of desalinated water.

83


2 Reported Income and Expenditure

! Operating Surplus

The GVI has maintained positive operating surpluses over the four year Review Period with FY2011 recording the highest surplus of approx. $36.5 million while FY2009 recorded the lowest surplus of approx. $15.0 million. FY2009 revenues were also lowest at $268.6 million over the last four years after the global economic crisis in 2008.

BVI Government Annual Financial Statements Statement of Income & Expenditure



US$

Actual

(Audited)

Actual

(Audited)

Actual

(Audited)

Actual

(Unaudited)

Recurrent Activity

Recurrent Revenue 278,580,199 268,644,829 272,960,807 287,479,526

Less: Recurrent Expenditure (248,352,177) (253,665,085) (256,396,051) (251,006,071)

Operating Surplus - As Reported 30,228,022 14,979,744 16,564,756 36,473,455

Contributions to Other Funds


Emergency/Disaster Fund (1,000,000) - - -

Pension Fund (2,200,000) - - -

Reserve Fund (1,000,000) - - (1,780,100)

Contingency Fund - - - -

Repairs and Renewal Fund (200,000) - - -

Total Fund Contributions - As Reported (39,742,879) (22,647,900) (19,726,000) (31,848,100)

Consolidated Fund Surplus/(Deficit) (9,514,857) (7,668,156) (3,161,244) 4,625,355

Source: Audited accounts for years ended 31 December 2008 to 2010, Unadited accounts

for year ended 31 December 2011 and Pw C Analysis


PwC


Final

The average annual recurrent revenue of the Government was $277 million over the last four years, and was primarily generated from Financial Services fees, Taxes, Import Duties and other Fees such as Stamp Duty

The table above represents an analysis of the composition of the Government’s Recurrent Revenue over the Review Period.

The primary revenue contributors to the Government’s annual revenues comes from Financial Services, Taxes, Import Duties and Fees. Financial services has historically accounted for 59.2% to 63.4% of total revenues.

The sustainability of FSC fees are critical to the GVI as these fees are the main revenue generator.

84


3 Recurrent Revenue Analysis

BVI Government Recurrent Revenue Analysis


FY08 % FY09 % FY10 % FY11 %

Sources of Revenue Audited of Total Audited of Total Audited of Total Unaudited of Total

Financial Services 164,896,132 59.2% 166,845,763 62.1% 167,991,753 61.5% 182,183,694 63.4%

Taxes 43,713,430 15.7% 43,046,070 16.0% 44,452,842 16.3% 45,579,776 15.9%

Import Duties 32,959,268 11.8% 29,318,542 10.9% 29,318,434 10.7% 29,094,301 10.1%

Fees 18,047,871 6.5% 11,825,652 4.4% 11,216,818 4.1% 12,983,539 4.5%

Licences 9,690,615 3.5% 9,347,460 3.5% 9,377,022 3.4% 9,290,175 3.2%

Sales 6,265,459 2.2% 5,698,911 2.1% 5,876,436 2.2% 6,261,692 2.2%

Other Govt Revenue 1,028,097 0.4% 769,634 0.3% 3,400,945 1.2% 306,659 0.1%

Fines and Forfeitures 732,211 0.3% 419,520 0.2% 382,668 0.1% 256,325 0.1%

Investment Income 699,381 0.3% 575,574 0.2% 321,102 0.1% 381,465 0.1%

Rental 475,614 0.2% 720,389 0.3% 596,281 0.2% 1,141,893 0.4%

Royalties 72,121 0.0% 77,317 0.0% 26,507 0.0% 7 0.0%

Total Recurrent Revenue 278,580,199 268,644,829 272,960,807 287,479,526

Source: Audited accounts for years ended 31 December 2008 to 2010,

Unadited accounts for year ended 31 December 2011 and Pw C Analysis

Revenue streams from the various sources are relatively flat year on year with the exception of:

! Financial Services Income

• This income is earned through the Financial Services Commission (FSC) which is a statutory body responsible for registering companies and issuing banking licences etc. The FSC collects fees, charges and penalties payable under the Financial Services Commission Act 2001. The monies collected by the FSC are paid into a joint trust account and transferred to the Government’s Consolidated Fund on a quarterly basis.

• Financial Services income increased by $14.3 million in FY2011 as a result of 64,729 companies registering in FY2011 as opposed to the prior year where 59,624 companies were registered.


PwC


Final

Recurrent revenue streams remained relatively flat over the Review Period with the exception of notable movements in Financial Services Income, Import Duties and Fees

@ Import Duties

Import duties declined by $3.6 million from FY2008 to FY2009 primarily as a result of a decrease in import duties charged on non-alcoholic beverages, which decreased from $31.2 million in FY 2008 to $27.3 million in FY 2009. Import duties remained relatively flat from FY2009 to FY2011.

# Fees

Fees declined from FY2008 to FY2009 by $6.2 million primarily due to reductions in stamp duty fees collected in FY2008 from $10.0 million to $4.1 million collected in FY2009. Management represented that stamp duty fees is the second largest source of revenue collected with the Inland Revenue Department. Stamp Duties are charged and imposed under the Stamps Act on affidavits, agreements, bills of sale, mortgage, bonds, debentures, transfer of land, lease and power of attorney. The reduction in stamp duty for FY2008 to FY2009 was solely due to a reduction in the volume of instruments presented that attracted stamp duties. These fees have remained relatively flat for FY2009 to FY2011.

85


3 Recurrent Revenue Analysis Glossary Appendices Supporting information Executive report At a glance – our views

PwC


Final

The total annual recurrent expenditure remained relatively stable over the Review Period.

The annual recurrent expenditure of the Government for the Review Period ranged from $248.4 million to $251 million. As shown in the table, the annual recurrent expenditure was relatively stable over the Review Period.

We performed a high-level analysis of the top 15 expenses and analyzed expenses with variances greater than $1 million year on year as follows:

! Grant to Statutory Board (Premier’s Office). The allocated grants to

the Premier’s Office are transferred to various statutory bodies, the Government’s college and the Tourist Board. Changes in this grant are directly related to the recurrent expenditure needs of these entities.

@ Health (Hospital Services), Health (Community Services) and

Grant to Statutory Board (Ministry of Health and Social Development. These three expenditure components are inter-related as expenses which fell under Health (Hospital Services) and Health (Community Services) in FY2008 and FY2009 were consolidated and re-categorized from FY2010 under Grant to Statutory Board (Ministry of Health and Social Development). The expenses within these categories relate to recurrent expenditure incurred within the BVI Health Services Authority, i.e. Salaries, utilities, equipment etc.

# Water and Sewerage. Expenses within this component relates to

recurrent expenses involved in the operations of the Water and Sewerage Authority. The primary variable expense within this category relates to the purchase of desalinated water which makes up approximately 61% of the total water and sewerage expenses.

86


4 Recurrent Expenditure Analysis

! @ @ @ #

The table above illustrates the annual Recurrent Expenditure of the Government for Review Period FY2008 to FY2011. The analysis details the 15 largest expenses of the Government by type, with all other expenses consolidated under “Other Government Expenses”.

BVI Government Recurrent Expenditure Analysis


FY08 FY09 FY10 FY11

Expenditure by Head Audited Audited Audited Unaudited

Grant to Statutory Board (Premier's Office) 22,208,775 20,967,745 23,806,711 26,126,070

Health (Hospital Services) 19,189,492 16,346,940 - -

Health (Community Services) 6,590,477 6,051,948 - -

Grant to Statutory Board (Ministry of Health and

Social Development) - 1,902,384 19,819,604 19,235,954

Water & Sewerage 14,705,880 17,755,736 21,398,554 14,669,177

Police 14,550,056 15,597,058 14,977,503 15,223,258

Ministry of Education & Culture 9,418,090 9,416,326 9,641,049 9,788,341

Pension & Gratuities 9,058,004 12,038,507 13,028,530 12,351,394

Education (BVI High School) 8,922,860 8,742,822 8,875,805 8,880,407

Education (Primary and Pre-Primary) 8,900,702 8,912,994 9,039,118 8,896,392

Public Works 8,808,180 8,564,871 8,366,440 8,235,578

Public Debt 7,601,625 7,854,713 12,510,703 14,112,355

Premier's Office 5,549,140 5,418,231 5,791,107 5,306,473

Customs 4,822,091 4,840,350 5,027,856 4,775,463

Ministry of Communication & Works 4,744,793 5,020,334 4,398,226 3,107,716

Other Government Expenses 103,282,012 104,234,127 99,714,847 100,297,494

Total Recurrent Expenditure 248,352,177 253,665,085 256,396,051 251,006,071

Growth in expenses (%) NA 2% 1% (2%)




PwC


Final

The overall reduction in annual expenses to $251 million in 2011 was primarily due to a reduction in Water and Sewerage costs which was offset somewhat by an increase Public Debt Servicing

# Water and Sewerage. Based on a review of the annual expenses for

the Water and Sewerage Authority, it was noted that the purchase of desalinated water was the primary cause of fluctuations in the Water and Sewerage as indicated in the table below.

87



#

FY Total Water and Sewerage Expenses

Purchase of Desalinated Water

FY2008 $14,705,880 $9,000,000

FY2009 $17,755,738 $12,932,742

FY2010 $21,398,554 $16,076,595

FY2011 $14,669,177 $9,459,797

The overall reduction in total expenses in FY2011 to $251 million was largely due to the reduction in Water and Sewerage.

$ Police. This expense component relates to the recurrent expenses

for the police service. This expense showed an increase from FY2008 to FY2009 of $1 million which was primarily due to an increase in staff employed within the police service.

% Pension and Gratuities. This expense relates to pension and

gratuity payments made to public servants. This expense showed an increase of approximately $3 million from FY2008 to FY2009 which was primarily due to a significant increase in payments to civil servants from $7.8 million to $10.6 million.

^ Public Debt. This expense relates to repayments made to loans

taken out by the Government. This expense showed significant increases in FY2010 and FY 2011 due to increases in the Public Debt loan balance related to financing of the construction of the new Peebles Hospital.

$

%

^



FY08 FY09 FY10 FY11







Water & Sewerage 14,705,880 17,755,736 21,398,554 14,669,177

Police 14,550,056 15,597,058 14,977,503 15,223,258





Public Works 8,808,180 8,564,871 8,366,440 8,235,578

Public Debt 7,601,625 7,854,713 12,510,703 14,112,355

Premier's Office 5,549,140 5,418,231 5,791,107 5,306,473

Customs 4,822,091 4,840,350 5,027,856 4,775,463







Source: Treasury Financial Statements


PwC


Final

The significant increase in loan repayments from FY2010 is a direct result of three new loans amounting to $64.7 million that were secured in FY2009, primarily to fund construction of the New Peebles Hospital

88



^ Public Debt. The table below illustrates the co-related movement

between the Public Debt servicing expense and the Public Debt loan balance. Increased repayments were noted from FY2009 as the Government took out significant additional loans in this financial period.

^

FY Public Debt Loan Balance

Public Debt Expense

FY2008 $72,008,782 $7,601,625

FY2009 $134,251,314 $7,854,713

FY2010 $126,713,341 $12,510,703

FY2011 $113,473,556 $14,112,355

Repayments to the Government’s loan portfolio are made from the Consolidated Fund.

Overall, costs are largely fixed and revenues heavily dependent on FSC fee collections which may not be sustainable given the economic volatility in Europe and United States. Government is seeking to increase and to diversify the BVI’s income stream, by pushing certain statutory boards like BVIHSA to be more self-sufficient, and introduce cost cutting austerity measures.



FY08 FY09 FY10 FY11







Water & Sewerage 14,705,880 17,755,736 21,398,554 14,669,177

Police 14,550,056 15,597,058 14,977,503 15,223,258





Public Works 8,808,180 8,564,871 8,366,440 8,235,578

Public Debt 7,601,625 7,854,713 12,510,703 14,112,355

Premier's Office 5,549,140 5,418,231 5,791,107 5,306,473

Customs 4,822,091 4,840,350 5,027,856 4,775,463









PwC


Final

FY2011 Abstract Statement

89


5 FY2011 Abstract Statement

GOVERNMENT OF THE VIRGIN ISLANDS

Abstract Statement 2011

: : : : : : :

RECEIPTS : Budget : Actual : Variance : PAYMENTS : B U D G E T : A C T U A L :

: : : : : Local : Development : Loan : Total : Local : Development : Loan : Total : Variance

: : : : : Revenue : Aid & Grants : : : Revenue : Aid & Grants : : :

: $ : $ : $ : : $ : $ : $ : $ : $ : $ : $ : $ : $

: : : : : : : : : : : : : RECURRENT BUDGET : : : : RECURRENT BUDGET : : : : : : : : :

Import Duties : 35,300,000 : 29,094,196 : 6,205,804 : Deputy Governor : 44,405,200 : : : 44,405,200 : 38,954,727 : : : 38,954,727 : 5,450,473

Taxes : 46,345,000 : 45,579,881 : 765,119 : Premier's Office : 39,230,500 : : : 39,230,500 : 38,924,682 : : : 38,924,682 : 305,818

Licences : 12,466,000 : 9,290,175 : 3,175,825 : Ministry of Finance : 21,360,000 : : : 21,360,000 : 19,407,403 : : : 19,407,403 : 1,952,597

Fines and Forefeitures : 600,000 : 256,325 : 343,675 : Ministry of Natural Resources & Labour : 11,476,200 : : : 11,476,200 : 10,686,441 : : : 10,686,441 : 789,759

Fees : 16,112,000 : 12,983,539 : 3,128,461 : Ministry of Education & Culture : 43,428,000 : : : 43,428,000 : 42,393,139 : : : 42,393,139 : 1,034,861

Sales : 6,591,000 : 6,261,692 : 329,308 : Ministry of Health & Welfare : 32,962,800 : : : 32,962,800 : 33,906,514 : : : 33,906,514 : (943,714)

Rental : 417,000 : 1,141,893 : (724,893) : Ministry of Communication & Works : 36,596,600 : : : 36,596,600 : 36,526,158 : : : 36,526,158 : 70,442

Royalties : 75,000 : 7 : 74,993 : Pensions and Gratuities : 11,166,000 : : : 11,166,000 : 12,351,394 : : : 12,351,394 : (1,185,394)

Investment Income : 490,000 : 381,465 : 108,535 : Public Debt : 16,332,300 : : : 16,332,300 : 14,112,355 : : : 14,112,355 : 2,219,945

Other Government Revenue : 169,488,000 : 182,490,353 : (13,002,353) : Miscellaneous : 3,850,200 : : : 3,850,200 : 3,743,258 : : : 3,743,258 : 106,942

: : : : Funds Contribution : 28,076,200 : : : 28,076,200 : 31,848,100 : : : 31,848,100 : (3,771,900)

Total Recurrent Revenue : 287,884,000 : 287,479,526 : 404,474 : Total Recurrent Expenditure : 288,884,000 : : : 288,884,000 : 282,854,171 : : : 282,854,171 : 6,029,829

: : : : : : : : : : : : :

CAPITAL BUDGET : : : : CAPITAL BUDGET : : : : : : : : :

Local Revenue : 21,076,200 : 30,068,000 : (8,991,800) : Deputy Governor : 4,075,534 : 7,343 : : 4,082,877 : 1,892,932 : : : 1,892,932 : 2,189,945

Loan : - : 14,178,887 : (14,178,887) : Premier's Office : 7,555,104 : 383,832 : : 7,938,936 : 4,851,931 : : : 4,851,931 : 3,087,005

Grants : - : - : - : Ministry of Finance : 3,991,661 : : 6,250,000 : 10,241,661 : 2,288,195 : : : 2,288,195 : 7,953,466

Investment Income : - : 28,091 : (28,091) : Ministry of Natural Resources & Labour : 4,560,446 : : 2,603,515 : 7,163,961 : 2,051,112 : 7,530 : : 2,058,642 : 5,105,318

Revenue Other : - : - : - : Ministry of Education & Culture : 7,055,134 : : : 7,055,134 : 6,245,244 : 1,066 : : 6,246,310 : 808,823

: : : : Ministry of Health & Welfare : 12,357,405 : : 84,131,575 : 96,488,981 : 3,566,102 : : 2,063,143 : 5,629,245 : 90,859,736

: : : : Ministry of Communication & Works : 29,223,392 : : 19,453,950 : 48,677,343 : 11,755,729 : : 2,396,452 : 14,152,181 : 34,525,162

: : : : Miscellaneous : 4,769,501 : : : 4,769,501 : 2,858,720 : : : 2,858,720 : 1,910,781

Total Development Revenue : 21,076,200 - 44,274,978 - (23,198,778) : Total Development Expenditure : 73,588,177 : 391,175 : 112,439,040 : 186,418,392 : 35,509,964 : 8,596 : 4,459,595 : 39,978,155 : 146,440,237

Total Recurrent Revenue : 287,884,000 - 287,479,526 : 404,474 : Total Recurrent Expenditure : 288,884,000 : : 288,884,000 : 282,854,171 : : : 282,854,171 : 6,029,829

: : : : : : : : : : : : :

Grand Total Revenue : 308,960,200 : 331,754,504 : (22,794,304) : Grand Total Expenditure : 362,472,177 : 391,175 : 112,439,040 : 475,302,392 : 318,364,135 : : : 322,832,326 : 152,470,066

: : : : : : : : : : : : :

OTHER FUNDS: : : : : OTHER FUNDS: : : : : : : : : :

Contingency Fund : : 1,421,095 : : Contingency Fund : : : : : : : : 1,382,626 :

Emergency/Disaster Fund : : 42,942 : : Emergency/Disaster Fund : : : : : : : : 440,985 :

Transportation Improv Netwrk Fund : : 1,037,159 : : Transportation Improv Netwrk Fund : : : : : : : : - :

Car Loan Revolving Fund : : 25,774 : : Car Loan Revolving Fund : : : : : : : : - :

Debt Service Fund : : - : : Debt Service Fund : : : : : : : : - :

Loan Revolving Fund : : - : : Loan Revolving Fund : : : : : : : : - :

Pension Fund : : - : : Pension Fund : : : : : : : : - :

Reserve Fund : : 1,827,060 : : Reserve Fund : : : : : : : : - :

Repairs & Renewal Fund : : - : : Repairs & Renewal Fund : : : : : : : : - :

: : : : : : : : : : : : :

DEPOSITS: : : : : DEPOSITS: : : : : : : : : :

Postmaster : : 601,429 : : Postmaster : : : : : : : : 619,293 :

Other : : 424,065,614 : : Other : : : : : : : : 422,320,854 :

: : : : : : : : : : : : :

INVESTMENTS: : : : : INVESTMENTS: : : : : : : : : :

Certificates of Deposits & Savings : : 11,010,468 : : Certificates of Deposits & Savings : : : : : : : : 11,752,557 :

: : : : : : : : : : : : :

ADVANCES: : : : : ADVANCES: : : : : : : : : :

Current Accounts : : 46,302 : : Current Accounts : : : : : : : : 83,705 :

Public Officers : : 1,299,509 : : Public Officers : : : : : : : : 1,369,022 :

Other : : 2,278,910 : : Other : : : : : : : : 2,343,933 :

: : : : : : : : ` : : : : :

Total Receipts : : 775,410,766 : : Total Payments : : : : : : : : 763,145,301 :

Cash Balance as at 1.1.11 : : 3,404,229 : : Cash Balance as at 31.12.11 : : : : : : : : 15,669,693 :

: : : : : : : : : : : : :

Grand Total : : 778,814,994 : : Grand Total : : : : : : : : 778,814,994 :



PwC


Final

Year-end Commitments / Unrecorded Liabilities at December 31, 2011

90


6 Year-end Commitments / Unrecorded Liabilities

Unpaid Commitments at Year-End December 2011 ("closed" Purchase Orders)

Constitutional Established Departments Ministry of Natural Resources and Departments

House of Assembly 29,057.17 Ministry of Natural Resources and Labour 63,010.77

Cabinet Office 8,581.55 Agriculture -

Office of DPP 2.065.75 BVI Fishing Complex 58,604.85

Complaint Commission 6,812.90 Conservation and Fisheries Department 3,137.20

Audit 489 Labour 4,481.00

44,940.52 Land Registry 5,040.95

Survey 4,238.44

Governor's Group 138,513.21

Governor 415 Ministry of Education And Culture and Departments

Deputy Governor 12,151

Department of Human Resources 10,934.20 Ministry of Education and Culture 286,484.75

Training 3,088.66 Youth Affairs and Sports -

Department of Disaster Management 37,933.37 Education (Administration) 193,991.76

Supreme Court 41,099.77 Education (Pre-Primary and Primary) -

Civil Registry and Passport Office 1,960.61 Department of Culture -

Magistracy 3,513.80 Education (Other Secondary Schools) 5,192

Commercial Court 6,237.98 Education (Elmore Stoutt High School) -

Attorney General's Chambers 261.46 Library Services 3,788.61

Police 106,445 Prison 89,655.28

Law Reform Commission 505.25 579,112.65

224,545.81

Ministry of Health and Social Development

Premier's Office and Departments

Ministry of Health and Social Development 64,727.09

Premier's Office 65,279.01 Adina Donovan Home 12,225.04

BVI Shipping Registry 4,926.62 Department of Waste Management 46,818.74

Development Planning - Social Development Department 0.00

BVI International Finance Centre 795,471.30 123,770.87

Immigration 106,412.60

Information and Public Relations 1,479 Ministry of Communications and Works and Departments

Town and Country Planning -

BVI International Affairs Secretariat 371 Ministry of Communications and Works 1,024,082.78

Trade and Consumer Affairs 38,340.83 Facilities Management Unit 5,388.49

1,012,281.00 Civil Aviation -

Fire Services 53,073.79

Ministry of Finance and Departments Water and Sewerage 3,579,771.23

Department of Motor Vehicle 0.00

Ministry of Finance 151,855.17 Public Works 90,401.42

Customs 292,749.67 Telephone Services Management Unit 41,925.36

Inland Revenue 3,669.43 4,794,643.07

Internal Audit 1,863.00

Post Office 28,283.14

Treasury 13,430.97

Department of Information Technology 1,480.34

493,331.72 Grand Total 7,411,138.85

Source: Treasury Management Information (Regulation 83 Schedule)


PwC


Final

Litigation Listing – pending legal liability as at December 2011

91


7 Litigation Listing

Litigation accrual

Case

Date Claim

was Filed Judgment Granted

Outstanding

as at 31-Dec-11 Additional Comments

1 BVIHCV2007/0277 BVIHCV2008/192 BVI Appeal 19 of 2009 BVI Appeal;

20 of 2009

Ocean Conversion

Jan-07 Judgment granted in favor of

claimant during 2011

1,000,000 -

2 BVIHCV2008/270 Erminie Mathavious 2008 Information not supplied 240,000 Payment was made to claimant in May 2012

3 BVIHCV2011/0129 Kevin Prince v Attorney General May-11 Payment to be made to

claimant as stated under the

Police Act

6,000 -

4 BVIHCV2011/0223 Mario Matthew, Commissioner of Police, Attorney General

Sep-11 No 11,707 It is likely for the judgment to be in favor of the

claimant.

5 BVIHCV2011/24 Jun-11 No 10,000 The Government has admitted liability

6 Civil Appeal No.41 of 2012 Loretta Frett (Executor of the Estate of Jeuel Simeon

Frett, deceased) v Attorney General

2007 No 150,000 General damages may possibly range from

$150,000 - $200,000 if claimant is successful.

7 BVIHCV2007/008 Vincent Pickering, Cedric Pickering & Attorney General 2007/08 Yes 147,227 -

8 BVIHCV 2007/306 Civil Appeal 27/2008 Civil Appeal 65/2011

Daphne Alves

2007 Yes 179,706 -

9 BVIHCV 2008/0383 Berenice Freeman 2008 Yes 41,634 -

Total Litigation Liability as at 31-Dec-2011 1,786,274

10 BVIHCV2011/0015 Esther Penn-Frett v Virgin Islands Shipping Registry, Yvette

Huggins, Attorney General

Jan-11 Information not supplied 455,993 -

11 BVIHCV2008/270 Erminie Mathavious 2008 Information not supplied NQ Claimant's assessment of expenses paid out

with settlement of $240,000

Total Litigation 2,242,266

Source: Litigation listing provided by the Attorney General's Chambers


PwC


Final

Listing of Major Contracts awarded during FY2011

92


8 Major Contracts awarded in FY2011

No. Contract No. Contractor Contract Description Contract Amount Cabinet

Waiver

Date

Contract

Signed

Signatories Budget/S

APS

(Y/N)

Owners / Directors

1 MEC/1/11 STO Enterprises

Architectural services for the modernization of the Elmore

Stoutt High School Campus

705,000.00 8-Dec-10 3-Mar-11 Ralph T. O'Neil - Premier of GVI

Dion Stoutt - STO Enterprise Y Dion Stoutt

2 MEC/2/11 QWOMAR Construction

Construct 2nd floor of the bathroom facility for the VI

Festival and Fairs

144,249.80 24-Aug-11 7-Sep-11 Ralph T. O'Neil - Premier of GVI

Marvin Blyden - Quomar

Construction Y Lorrily Anthony and Marvin Blyden

3 MEC/2/11 N.E.E.D.S by Samuel Jones

Purchase and supply furniture for Francis Lettsome

Primary School

150,951.00 24-Aug-11 9-Sep-11 Ralph T. O'Neil - Premier of GVI

Samuel Jones - New Era

Educational and Developmental

Supplies Y Samuel Kenmore Jones

4 MOF/1/11 James Todman Construction

Building Envelope and external works @ New Peebles

Hospital

4,174,444.22 24-Mar-11 5-Dec-11 Ralph T. O'Neil - Premier of GVI

James Todman - James Todman

Construction Ltd Y James Todman

5 MOF/2/11 James Todman Construction Internal Fit-Out works at the New Peebles Hospital

30,808,870.88 1-Sep-11 4-Nov-11 Ralph T. O'Neil - Premier of GVI

James Todman - James Todman

Construction Ltd Y James Todman

6 MC&W/1/11 Enchantment Holding Ltd Civil Works at Virgin Gorda Airport Project

261,362.69 12-Jan-11 14-Jan-11 Ralph T. O'Neil - Premier of GVI

Anselmo Stevens - Enchantment

Holdings Ltd

Y Anselmo Stevens

7 MC&W/2/11 Virgin Gorda Concrete Products Road paving from Fanny Hill leading to Long Bay VG


Ronnie Allen - Virgin Gorda

Concrete Products Ltd

Y Ronnie Allen

8 MC&W/3/11 Ebony & Ivory Concrete Supply Ltd Road paving from Fanny Hill leading to Long Bay VG


Dwite Flax - Ebony & Ivory

Concrete Supply Ltd Y Dwite and Paola Flax

9 MC&W/4/11 Leonards Concrete Products Supply ready mixed concrete


Ricardo Leonard - Leonard

Concrete Products Ltd Y Ricardo Leonard

10 MC&W/5/11 D & C Construction

Supervise road construction from Fanny Hill to Long Bay

VG


Daniel Cline - D&C Construction Y Daniel Cline

11 MC&W/6/11 BVI Paving Ltd Asphalt overlay rehabilitation works

1,970,980.00 15-Dec-10 4-Feb-11 Ralph T. O'Neil - Premier of GVI

Mark Simmonds - BVI Paving Ltd Y Mark Simmonds and Ashley Ritter

12 MC&W/7/11 JoClaud Enterprises Ltd

Supply, instillation, maintenance and operations of traffic

signals at the intersection of James Walter Francis Drive

and Wickhams Cay II/Pasea Drive with interconnect to

Station Avenue

325,920.00 1-Sep-11 Ralph T. O'Neil - Premier of GVI

John C. Samuel - JoClaud

Enterprises Ltd

Julian Fraser - Witness (Minister

for Communications & Works) Y John C Samuel

13 DGO/1/11 Electronic Solutions

Installation of a closed circuit TV camera system across

Tortola

308,682.00 3-Feb-11 Ralph T. O'Neil - Premier of GVI

Edmund Trevor Blaize - Director,

Electronic Solutions Y Trevor Blaize

14 DGO/2/11 Solid Power Boats Inc Yamaha 300 for Police Department

273,257.00 10-Mar-11 Ralph T. O'Neil - Premier of GVI

Eddy Cerra - Solid Powerboats Inc Y Eddy Cerra

15 DGO/3/11 A. H. Parker & Sons Parker 900 Baltic Rigid Inflatable for Police Department

118,906.00 9-May-11 Ralph T. O'Neil - Premier of GVI

Andre Scott - Director, A.H. Parker

& Sons (Gt. Britain) Ltd Y Andre Scott


PwC


Final

Major Contracts awarded in FY2011 (Continued)

93


8 Major Contracts awarded in FY2011

No. Contract No. Contractor Contract Description Contract Amount Cabinet

Waiver

Date

Contract

Signed

Signatories Budget/S

APS

(Y/N)

Owners / Directors

16 MHSD/1/11 Deric Leonard Construction

Construction of North Sound Community Centre (Lower

Level)

630,022.58 23-Feb-11 25-May-11 Ralph T. O'Neil - Premier of GVI

Dancia Penn - Deputy Premier

Deric Leonard - Owner Y Deric Leonard

17 SW/1/11 RAL Trucking Service Collection of solid waste on VG

147,847.00 12-Jan-11 18-May-11 Ralph T. O'Neil - Premier of GVI

Lester Maduro - RAL Trucking

Services Lester Maduro

18 PO/1/11 STO Enterprising Ltd

Acquiring and construction of stadium at AO Shirley

Grounds

1,082,995.00 23-Feb-11 3-Mar-11 Ralph T. O'Neil - Premier of GVI

Dion Stoutt - STO Enterprise Dion Stoutt

19 PO/2/11 Tortola Concrete Products

Supply remix concrete and other materials for road works

on Anegada

1,071,914.00 28-Sep-11 19-Sep-11 Ralph T. O'Neil - Premier of GVI

Ashley Ritter - Tortola Concrete

Products Ltd Y M. Ashley Ritter

20 PO/3/11 D & C Construction Supervise contruction of road infrastructure on Anegada

252,689.06 28-Sep-11 19-Sep-11 Ralph T. O'Neil - Premier of GVI

Daniel Cline - D&C Construction Y Daniel Cline

21 PO/4/11 Anegada Concrete Products

Supply 2,166 cubic yrds of readymixed fibre concrete @

$231.00 per cy for Anegada road infrastructure

500,346.00 28-Sep-11 19-Sep-11 Ralph T. O'Neil - Premier of GVI

Kevin Vanterpool - Anegada

Concrete Products Ltd Y Vernon and Kevin Vanterpool

22 PO/5/11 Sandwise Ltd Re-development of the Red Bay Fisherman's Dock

776,030.00 7-Sep-11

Y

Amount approved by Cabinet was

exceeded

23 PO/6/11 Block Marine Construction EE Harbour Development design / construction of Dock 425,000.00 7-Sep-11 Y

24 MNRL1/11 WDMO Construction of bathroom facilities at the Top of the Baths

254,375.90 21-Jul-11 Ralph T. O'Neil - Premier of GVI

Wayne O'Neal - WDMO Group

Limited Wayne O' Neal

25 Not provided Real Legacy Insurance Insurance coverage for Central Admin Building (renewal) 396,416.00

26 MC/001/11 Tortola Carpet Sales & Services Cleaning Service for Central Admin Building

185,808.00 12-Aug-11 Ralph T. O'Neil - Premier of GVI

Ruford Potter - Director, Tortola

Carpet Sales and Services Ltd Ruford Potter

27 Not provided KPMG Job Proposal Analysis

300,000.00 1-Sep-11 Ralph T. O'Neil - Premier of GVI

Russell Crumpler - KPMG (BVI)

Limited Russell Crumpler

Total 46,354,210.13


PwC


Final

Listing of payments testing

94


9 Listing of Contract Payments

No. Contract No. Cheque

No.

Amount PO Payment

Approval Form

Voucher Payment

Certificate

Passed for

Payment

Cheque

Date

1 DGO/001M/2011 35891 $ 184,239.20 7-Feb-11 7-Feb-11 2-Feb-11 11-Feb-11 11-Feb-11

2 DGO/002M/2011 39820 $ 136,628.50 22-Mar-11 22-Mar-11 22-Mar-11 19-Apr-11 19-Apr-11

3 DGO/003M/2011 40001 $ 76,156.00 12-May-11 12-May-11 12-May-11 19-May-11 19-May-11

4 MC#001/11 560232 $ 16,110.98 8-Jun-11 6-Jul-11 12-Jul-11 13-Jul-11

5 MC#001/11 555756 $ 7,837.00 11-Apr-11 12-Apr-11 11-May-11 17-May-11

6 MC#001/11 553615 $ 7,742.00 2-Mar-11 22-Mar-11 18-Apr-11 20-Apr-11

7 MC1/2011 40469 $ 46,828.46 28-Jul-11 28-Jul-11 28-Jul-11 28-Jul-11 28-Jul-11

8 MCW#1/2011 40011 $ 235,226.42 22-Dec-10 12-May-11 5-May-11 19-May-11 19-May-11



11 MCW/MC#3/2010 40006 $ 74,980.08 13-Mar-11 25-Feb-11 23-Feb-11 19-May-11 19-May-11

12 MCW/MC#3/2010 40006 $ 205,461.00 22-Dec-10 12-May-11 26-Apr-11 19-May-11 19-May-11

13 MCW/MC#4/2011 40191 $ 249,303.93 22-Dec-10 17-Jun-11 15-Jun-11 22-Jun-11 23-Jun-11

14 MEC/01C/2011 41641 $ 211,500.00 22-Dec-11 22-Dec-11 22-Dec-11 31-Dec-11 31-Dec-11

15 MEC/01C/2011 39914 $ 176,250.00 25-03-11 25-03-11 25-Mar-11 6-May-11

16 MEC/02C/2011 41041 $ 70,000.00 7-Oct-11 7-Oct-11 7-Oct-11 12-Oct-11 12-Oct-11

17 MEC/02C/2011 41136 $ 74,249.80 7-Oct-11 7-Oct-11 7-Oct-11 19-Oct-11 19-Oct-11

18 MEC/03C/2011 41308 $ 143,951.00 25-Oct-11 25-Oct-11 25-Dec-11 8-Dec-11 8-Dec-11

19 MEC/03C/2011 42555 $ 7,000.00 27-Jul-12 27-Jul-12 27-Jul-12 27-Jul-12 27-Jul-12

20 MOF/MC#1/2011 42820 $ 313,807.00 23-Aug-12 23-Aug-12 23-Aug-12 21-Aug-12 24-Aug-12 24-Aug-12

21 MOF/MC#1/2011 43274 $ 118,617.75 17-Oct-12 17-Oct-12 17-Oct-12 9-Oct-12 19-Oct-12 19-Oct-12

22 MOF/MC#2/2011 42862 $ 2,025,035.66 3-Aug-12 22-Aug-12 30-Jul-12 31-Aug-12 31-Aug-12

23 MOF/MC#2/2011 43006 $ 1,027,596.78 12-Jun-12 23-Aug-12 19-Sep-12 20-Aug-12 21-Sep-12 21-Sep-12

24 MOF/MC#2/2011 43414 $ 782,906.85 12-Jun-12 19-Oct-12 26-Oct-12 9-Nov-12

25 MOH/001M/2011 40187 $ 63,002.26 17-Jun-11 8-Jun-11 21-Jun-11 22-Jun-11 23-Jun-11

26 MOH/001M/2011 41967 $ 137,403.26 30-Mar-12 30-Mar-12 30-Mar-12 30-Mar-12 30-Mar-12 5-Apr-12

27 MOH/001M/2011 42376 $ 55,225.47 11-Jun-12 21-Jun-12 29-Jun-12 21-Jun-12 29-Jun-12 29-Jun-12

28 MOH/001M/2011 42591 $ 58,884.68 27-Jul-12 27-Jul-12 31-Jul-12 30-Jul-12 1-Aug-12 1-Aug-12

29 MOH/001M/2011 43256 $ 70,302.31 9-Oct-12 9-Oct-12 9-Oct-12 9-Oct-12 11-Oct-12 19-Oct-12

30 PMO/001/2011 39673 $ 541,497.50 10-Mar-11 10-Mar-11 10-Mar-11 18-Mar-11 18-Mar-11

31 PMO/001/2011 40074 $ 324,898.50 23-May-11 23-May-11 25-May-11 27-May-11

32 PMO/001/2011 40117 $ 108,299.50 2-Jun-11 2-Jun-11 2-Jun-11 7-Jun-11 7-Jun-11

33 PMO/001/2011 40380 $ 108,299.50 2-Jun-11 11-Jul-11 20-Jul-11 21-Jul-11

34 SW1/11 559789 $ 7,979.16 5-Jul-11 5-Jul-11 8-Jul-11 8-Jul-11

35 SW1/11 556239 $ 7,979.16 20-May-11 20-May-11 24-May-11 25-May-11

36 SW1/11 554923 $ 7,979.16 27-Apr-11 28-Apr-11 14-Apr-11

37 SW1/11 553222 $ 7,979.16 4-Apr-11 4-Apr-11 14-Apr-11 14-Apr-11

38 SW1/11 550516 $ 7,979.16 23-Feb-11 23-Feb-11 2-Mar-11 3-Mar-11

39 563131 $ 132,142.00 10-Aug-11 12-Aug-11 16-Aug-11 17-Aug-11

40 557696 $ 50,050.65 6-Jun-11 6-Jun-11 9-Jun-11 15-Jun-11

41 551044 $ 35,523.55 3-Mar-11 4-Mar-11 16-Mar-11 17-Mar-11

42 550250 $ 16,985.90 1-Mar-11 18-Feb-11 1-Mar-11 3-Mar-11

Legend

Dates not in sequence

No document /

evidence on file


PwC


Final

Outstanding Information Requests

1. Documentation from Cabinet indicating the decision making process for the Major Contracts awarded in 2011 where the tender process was waived by Cabinet that have not yet been provided. (Cabinet papers, minutes, evaluations of bidders, instructions to Ministry or other correspondence)

2. Names of owners of vendors and copies of the major contracts for the three Major Contracts in 2011 and all major contract vendors for 2009 and 2010 as requested via email on 20th November 2012

95


10 Outstanding Audit Requests

Contract # Contractor Description of Project Cost

PO/5/11 Sandwise Ltd Re-development of the Red Bay Fisherman's

Dock

$ 776,030

PO/6/11 Block Marine Construction EE Harbour Development design /

construction of Dock

$425,000

Not noted Real Legacy Insurance Insurance coverage for Central

Administration Building (Renewal)

$396,416

3. Listing of Major Contract awards for 2008 from the Auditor General.


PwC


Final

Glossary

Term Definition/Meaning

BVI/VI British Virgin Islands

BVIGOV/GVI/Government Government of the British Virgin Islands

BVIHSA British Virgin Islands Health Services Authority

FS Financial Secretary

FSC Financial Services Commission

FY Financial Year

BVIG British Virgin Islands Government

IPSAS International Public Sector Accounting Standards

JDE JD Edwards System

Major Contracts Contracts valued greater than $100,000

P.O. Purchase Orders

PwC view Our view in the context of the scope of our work and the circumstances at the time of our field work

PwC PricewaterhouseCoopers Advisory Services Limited

96



PwC


Final

Glossary

Term Definition/Meaning

Review Period Our review period was focused on and limited to analysis of the historical results for the four (4) years ended 31 December 2011, analysis of bank statement cash balances and reconciliations as at December 2010 and 2011 and examination of Major Contracts entered into between January 1 and December 31 2011.

97



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