Office of the Auditor Hemisphere House 9 Church Street Hamilton HM 11, Bermuda Tel: (441)297-7961 Fax: (441)295-3849 Email: auditbda@ibl.bm AUDITOR'S REPORT To the Minister of Finance I have audited the statement of net assets available for benefits of the Contributory Pension Fund as at July 31, 1993 and the statement of changes in net assets available for benefits 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 paragraph, I conducted my audit in accordance with generally accepted auditing standards. 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. My examination indicated serious deficiencies in the accounting records and in the systems of internal control over contributions receivable and benefits paid. As a consequence, I was unable to confirm or verify by alternative means, contributions receivable and benefits paid included in the financial statements totalling $14,180,155 and $42,068,454 respectively. Management is in the process of reconstructing the contributions receivable and the employee contribution records, but does not expect to complete this on a timely basis nor are they assured that they will be able to support the amounts shown above: Accordingly, I was not able to determine whether any adjustments might be necessary to contributions receivable, contributions revenue, benefits paid, increase in net assets and net assets available for benefits. In view of the possible material effects on the financial statements of the matters described in the preceding paragraph, I am unable to express an opinion whether these financial statements are presented fairly in accordance with generally accepted accounting principles. For the year ended July 31,1992, the audit report contained a denial of opinion. As a result of the serious deficiencies in the accounting records and in the systems of internal controls over contributions receivable and benefits paid, I was unable to confirm or verify by alternative means, contributions receivable and benefits paid included in the financial statements totalling $12,916,453 and $38,052,058 respectively. Accordingly, I was not able to determine whether any adjustments might be necessary to contributions receivable, contributions revenue, benefits paid, increase in net assets and net assets available for benefits. Hamilton, Bermuda September 25, 1996 Larry T. Dennis, C.A. Auditor CONTRIBUTORY PENSION FUND STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS JULY 31, 1993 1993 1992 $ $ 122,050,870 71,058,502 105,684,238 60,642,180 193,109,372 166,326,418 14,180,155 3,274,414 1,549,324 12,916,453 4,278,251 1,328,691 19,003,893 18,523,395 38,178,410 33,600,688 250,291,675 218,450,501 Accounts payable and accrued liabilities Accrued benefits payable 637,415 1,825,881 514,918 1,657,900 Total liabilities 2,463,296 2,172,818 247,828,379 216,277,683 ASSETS Investments (note 3) Equities Bonds Receivables Contributions Due from the Government of Bermuda (note 4) Accrued interest and dividends Cash and deposits (note 5) Total assets LIABILITIES NET ASSETS AVAILABLE FOR BENEFITS The accompanying notes are an integral part of these financial statements. CONTRIBUTORY PENSION FUND STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED JULY 31,1993 1993 1992 $ $ INCREASE IN ASSETS Investment income Interest and dividends Change in fair values of investments Gain on sale of investments 7,934,662 6,007,509 5,871,908 6,965,917 350,555 10,611,535 19,814,079 17,928,007 55,985,447 54,452,788 75,799,526 72,380,795 42,068,454 2,180,376 38,052,058 2,551,138 44,248,830 40,603,196 31,550,696 31,777,599 NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR 216,277,683 184,500,084 NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR 247,828,379 216,277,683 Contributions DECFLEASE IN ASSETS Benefits Administrative expenses (note 6) INCREASE IN NET ASSETS The accompanying notes are an integral part of these financial statements. CONTRIBUTORY PENSION FUND NOTES TO THE FINANCIAL STATEMENTS JULY 31, 1993 1. AUTHORITY The Contributory Pension Fund ("the Fund") was established under The Contributory Pensions Act 1970 and its subsequent amendments. The purpose of the Fund is to provide old age pension, disability and death benefits for persons satisfying certain contribution, citizenship and/or residency requirements. Contributions to the Fund are compulsory for persons employed in Bermuda, the selfemployed and employers. This social insurance program enables members of the labour force to acquire and retain protection for themselves and their families against loss of income due to retirement, disability or death. If certain conditions are satisfied, the Fund also provides benefits to persons who have not contributed to the Fund. Benefits and expenses incurred in the administration of the Fund are financed from contributions made by the employees and employers noted above and from investment income. Funds are invested in accordance with the Public Funds Act 1954. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Basis of Presentation These financial statements are prepared on the going concern basis, under the assumption that 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. The statements present the aggregate financial position of the Fund as a separate financial reporting entity independent of the Government of Bermuda. 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 benefit obligations. (b) Investments Investments are stated at fair value. (c) Translation of Foreign Currencies Amounts denominated in United States dollars are translated into Bermuda dollars at par. Investments and cash deposits denominated in other foreign currencies are translated into Bermuda dollars at the year-end exchange rates. Revenues and expenses are translated at the exchange rate in effect at the transaction date. 3. INVESTMENTS Investments in bonds and equities are valued using published mid-market quotations. 277 CONTRIBUTORY PENSION FUND NOTES TO THE FINANCIAL STATEMENTS JULY 31,1993 4. DUE FROM THE GOVERNMENT OF BERMUDA The amount of $3,274,414 (1992 - $4,278,251) represents the net position of Government contributions due to the Fund and expenses paid by the Government on behalf of the Fund, which has not been settled at the year-end. The rate of interest accruing on the balance is 7% per annum. 5. CASH AND DEPOSITS Cash and deposits include cash positions of $31,119,671 (1992 - $26,909,999) held in the investment portfolios. 6. ADMINISTRATIVE EXPENSES 1993 $ Investment management fees Salaries Bad debt Printing, stationery and office Custodial fees Investment monitoring fees Audit 1992 $ 941,645 743,612 287,344 90,598 66,259 31,668 19,250 815,496 656,198 2,180,376 2,551,138 866,853 64,124 97,452 33,515 17,500 PENSION BENEFITS The most recent actuarial valuation was made as of August 1, 1993 by the Government Actuary, London. As at July 31, 1993, net assets available for benefits are more than five times the current benefit payments. 278