BERMUDA OMtce olfihe Sawdofcw {^mhe^wd 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, 1994 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 $16,833,915 and $46,215,720 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, 1993, 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 $14,180,155 and $42,068,454 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 30, 1997 Lany T. Dennis, C.A. Auditor Address all correspondence to the Auditor General: P.O. Box HM 2891. Hamilton HM LX. Bermuda • TeU441l 297-7961 • Fax (4411 295-3849 • E-mail: auditbda@ibl.bm CONTRIBUTORY PENSION FUND STATEMENT OF NET ASSETS AVAILABLE FOR BENEFITS JULY 31, 1994 1994 1993 $ $ 122,473,284 74,858,978 122,050,870 71,058,502 197,332,262 193,109,372 16,833,915 10,545,754 1,975,237 14,180,155 3,274,414 1,549,324 29,354,906 19,003,893 44,962,046 38,178,410 271,649,214 250,291,675 2,001,400 614,288 1,825,881 637,415 2,615,688 2,463,296 269,033,526 247,828,379 ASSETS Investments (note 3) Equities Bonds Receivables Contributions Due from the Government of Bermuda (note 4) iote4) Accrued interest and dividends Cash and deposits (note 5) Total assets LIABILITIES Accrued benefits payable Accounts payable and accrued liabilities Total liabilities 3FITS NET ASSETS AVAILABLE FOR BENEFITS The accompanying notes are an integral part of these financial statements. 138 CONTRIBUTORY PENSION FUND STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS FOR THE YEAR ENDED JULY 31, 1994 1994 1993 $ $ INCREASE IN ASSETS Investment income Interest and dividends Change in fair values of investments Gain on sale of investments 7,976,548 (3,068,588) 3,358,920 7,934,662 6,007,509 5,871,908 8,266,880 19,814,079 63,047,140 55,985,447 71,314,020 75,799,526 46,215,720 3,893,153 42,068,454 2,180,376 50,108,873 44,248,830 21,205,147 31,550,696 NET ASSETS AVAILABLE FOR BENEFITS, BEGINNING OF YEAR 247,828,379 216,277,683 NET ASSETS AVAILABLE FOR BENEFITS, END OF YEAR 269,033,526 247,828,379 Contributions DECREASE IN ASSETS Benefits Administrative expenses (note 6) INCREASE IN NET ASSETS The accompanying notes are an integral part of these financial statements. 139 CONTRIBUTORY PENSION FUND NOTES TO THE FINANCIAL STATEMENTS JULY 31, 1994 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. 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. 140 CONTRIBUTORY PENSION FUND NOTES TO THE FINANCIAL STATEMENTS JULY 31, 1994 3. INVESTMENTS Investments in bonds and equities are valued using published mid-market quotations. 4. DUE FROM THE GOVERNMENT OF BERMUDA The amount of $10,545,754 (1993 - $3,274,414) 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 TIME DEPOSITS Cash and time deposits include cash positions of $35,144,754 (1993 - $31,119,671) held in the investment portfolios. 6. ADMINISTRATIVE EXPENSES 1994 Bad debt Investment management fees Salaries Custodial fees Printing, stationery and office Investment monitoring fees Audit 1993 1,845,597 1,041,533 740,522 102,782 92,271 50,448 20,000 287,344 941,645 743,612 66,259 90,598 31,668 19,250 3,893,153 2,180,376 PENSION BENEFITS The most recent actuarial valuation was made as of August 1, 1993 by the Government Actuary, London. As at July 31, 1994, net assets available for benefits are more than five times the current benefit payments. 141