Office of the Auditor General Victoria Hall 11 Victoria Street Hamilton HM 11, Bermuda Tel: (441)296-3148 Fax: (441)295-3849 Email: auditbda@gov.bm Website: www.oagbermuda.gov.bm AUDITOR'S REPORT To the Minister of Finance I have audited the balance sheet of the Government Employees Health Insurance Fund as at March 31, 2005 and the statement of revenues and expenses and deficit for the year then ended. These financial statements are the responsibility of the Fund's management. My responsibility is to express an opinion on these financial statements based on my audit. Except as explained in the following paragraphs, I conducted my audit in accordance with auditing standards generally accepted in Bermuda and Canada. Those standards require that I plan and perform an audit to obtain reasonable assurance whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I was unable to obtain sufficient appropriate audit evidence to support the accuracy and completeness of claims expense of $30,283,226 and claims payable of $5,791,638. As a result, I was unable to determine whether adjustments might be necessary to claims expense, deficiency of revenues over expenses, liabilities and deficit. In addition, in respect of the year ended March 31, 2004, I qualified my opinion with respect to the lack of audit evidence relating to claims expense and claims payable. As a result, I am unable to satisfy myself over the accuracy of opening net assets at April 1, 2004. In my opinion, except for the effect of adjustments, if any, which I might have determined to be necessary had I been able to verify claims expense, claims payable, and opening net assets as described in the preceding paragraphs, these financial statements present fairly, in all material respects, the financial position of the Government Employees Health Insurance Fund as at March 31, 2005 and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in Bermuda and Canada. Hamilton, Bermuda January 9, 2008 Larry T. Dennis, C.A. Auditor General 261 GOVERNMENT EMPLOYEES HEALTH INSURANCE FUND BALANCE SHEET MARCH 31, 2005 2005 2004 $ $ ASSETS CURRENT ASSETS 327,219 763,723 215,036 1,694,262 315,000 90,000 1,620,978 1,784,262 797,487 62,625 6,004,502 937,749 4,853,889 1,966,363 831,269 1,353,471 5,034,409 1,503,347 14,559,990 8,785,121 (12,939,012) (7,000,859) 1,620,978 CAPITAL ASSETS (note 4) 1,157,777 321,449 215,036 1,305,978 Premiums receivable Portability receivable Other receivable 1,784,262 LIABILITIES AND DEFICIT CURRENT LIABILITIES Accounts payable and accrued liabilities Due to the Consolidated Fund of the Government of Bermuda (note 3) Claims payable to Bermuda Hospitals Board Other claims payable Contributions received in advance DEFICIT The accompanying notes are an integral part of these financial statements. 262 GOVERNMENT EMPLOYEES HEALTH FNSURANCE FUND STATEMENT OF REVENUES AND EXPENSES AND DEFICIT FOR THE YEAR ENDED MARCH 31, 2005 2005 2004 $ $ REVENUES Contributions Interest 26,602,030 22,920,734 305,821 26,602,030 23,226,555 30,283,226 1,295,176 478,739 277,102 83,631 52,429 20,000 6,923 5,752 4,500 3,716 29,717,123 1,123,388 443,710 EXPENSES Claims Premiums - Mutual Re-insurance Fund (note 5) Salaries Interest Administration Consulting Audit fees Postage Supplies Actuarial fees Telephone Loss due to theft (note 6) Miscellaneous 22,424 20,000 10,787 1,514 8,000 28,989 42,018 8,658 32,540,183 31,397,622 DEFICIENCY OF REVENUES OVER EXPENSES (5,938,153) (8,171,067) (DEFICIT) NET ASSETS, BEGINNING OF YEAR (7,000,859) 1,170,208 (12,939,012) (7,000,859) DEFICIT, END OF YEAR The accompanying notes are an integral part of these financial statements. 263 GOVERNMENT EMPLOYEES HEALTH FNSURANCE FUND NOTES TO THE FrNANCIAL STATEMENTS MARCH 31, 2005 1. AUTHORITY The Government Employees Health Insurance Fund ("the Fund") was established under the Government Employees (Health Insurance) Act 1986 and its subsequent amendments. The Fund provides health insurance benefits for government employees, Ministers and Members of the Legislature, and their enrolled dependants and covers medical expenses, such as hospital stays, doctor's visits and prescription drugs. The Fund derives its revenue from contributions received from its members and the Consolidated Fund of the Government of Bermuda. Enrolment in the Scheme is compulsory for all government employees and voluntary for Ministers and Members of the Legislature. Contributions are matched by an equivalent amount from the Consolidated Fund. 2. SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with accounting principles generally accepted in Bermuda and Canada and include the following significant accounting policies: (a) Basis of presentation These financial statements are prepared on the going concern basis, meaning the Fund will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the normal course of operations. They present the aggregate financial position of the Fund as a separate financial reporting entity independent of the Government of Bermuda and its employees. The financial statements show only the net assets available for benefits of the Fund and do not purport to show the adequacy of the Fund to meet future obligations. (b) Capital assets Expenditures for items such as computers, furniture and fixtures, and other office equipment in excess of $5,000 and software with development costs in excess of $20,000 are capitalized at cost. (c) Revenue recognition Contributions and interest revenues are recognized when earned. Amounts earned but not received at year end are recorded as receivables. 264 GOVERNMENT EMPLOYEES HEALTH INSURANCE FUND NOTES TO THE FINANCIAL STATEMENTS MARCH 31, 2005 2. SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Translation of foreign currencies The financial statements are reported in Bermuda dollars. The Bermuda dollar is at par with the United States dollar. Assets and liabilities are translated at the exchange rate prevailing at the balance sheet date. Revenues and expenses are translated at the exchange rate in effect of the transaction date. Translation gains and losses are included in the statement of revenues and expenses and deficit. (e) Use of estimates The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues earned and expenses incurred during the year. Actual results could differ from these estimates. 3 DUE TO THE CONSOLIDATED FUND OF THE GOVERNMENT OF BERMUDA . The amount of $6,004,502 (2004 - $831,269) due to the Consolidated Fund of the Government of Bermuda represents the net position of expenses paid and certain revenues received by the Consolidated Fund on behalf of the Fund. The rate of interest accruing on the balance is 7% per annum. 4. CAPITAL ASSETS The balance of capital assets represents amounts paid to develop GEHI claims software. This software was still in development as of March 31, 2005. Subsequent to year-end, the GEHI claims software was ready for use on April 1, 2006. As a result, amortization of the software will begin in the 2006/2007 fiscal year. 5. PREMIUMS - MUTUAL RE-INSURANCE FUND The Fund pays premiums to the Mutual Re-insurance Fund which provides reinsurance for the costs of haemodialysis treatment, long-stay hospital care, home health care, kidney transplants and the required anti-rejection drugs. 265 GOVERNMENT EMPLOYEES HEALTH INSURANCE FUND NOTES TO THE FTNANCIAL STATEMENTS MARCH 31, 2005 6. LOSS DUE TO THEFT An employee of the Fund was convicted of submitting fictitious claims approximating $160,000 for fiscal years 2003 and 2004. Thus, his employment was terminated. As of January 2008, approximately $40,600 has been recovered. 7. RELATED PARTY TRANSACTIONS The Bermuda Hospitals Board, the Mutual Re-insurance Fund, the Consolidated Fund and the Government Employees Health Insurance Fund are under the common control of the Government of Bermuda. All transactions between the Government Employees Health Insurance Fund and the related parties are in the normal course of operations. 8. STATEMENT OF CASH FLOWS A statement of cash flows has not been prepared as it would not provide additional useful information. 266