The Tribune

• Auditor General reveals restrictions' economic impact

• Post Office Bank told: Transfer 9,000 dormant accounts

• Warned that manual systems exposed to 'fraud, errors'

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

Taxable goods and services transactions plummeted in value by $1.264bn during the COVID pandemic's peak due to lockdowns and other economic restrictions, it has been revealed.

The Auditor General's recently-filed report on the Government's finances for the 2020-2021 fiscal year, which coincided with the pandemic's peak, gives an insight into just how sharply consumption-based activity within the Bahamian economy slumped based on the value of transactions that attracted VAT at the then-prevailing 12 percent rate.

Taxable, or VAT-able, goods and services transactions declined in value by 15 percent or $1.264bn year-over-year, according to the report, falling from $7.296bn in the 2019-2020 fiscal year to some $6.168bn in 2020-2021.

"COVID-19 economically impacted trade and industries' VAT-able goods and services and, in addition, the lockdown and curfew protocols," the Auditor General's Office affirmed in its report. "In 2019-2020, $7.29bn was spent on the consumption of VAT-able goods and services, and this decreased in 2020-2021 to $6.16bn or 15 percent, the amount being $1.2bn less spent on VAT-able consumption."

The two figures cited represent consumption spend excluding the 12 percent VAT levied on those goods and services. Consumption-based VAT fell from $875.542m in 2019-2020 to $740.103m the following year and, adding those revenues to the value of goods and services transacted, reveals that total consumption spend plunged from $8.171bn to $6.908bn during the first full year of COVID.

While the data does not capture all consumption-based transactions that took place in the Bahamian economy over those two fiscal years, it nevertheless serves as a reasonably accurate barometer of the negative consequences for a system in which the consumer is thought to drive around two-thirds of all activity.

"VAT performance, in part, was impacted by tax relief and policy put in place to combat the economic impact and devastation of Hurricane Dorian on Abaco and Grand Bahama, and the COVID-19 pandemic on the country," the Auditor General's Office said in the report.

"Curfews, lockdowns and restrictions on businesses impeded VAT revenue growth as is related to the consumption of goods and services, in particular in the primary industry, tourism. Overall, the $740.1m VAT revenue collected contributed to 39 percent of the Government's $1.9bn recurrent revenue. Fiscal 2020-2021 was the full bloom COVID-19 period which impeded revenue growth."

Elsewhere, the Auditor General's Office urged that the Post Office Savings Bank develop the necessary records so that its 9,000 dormant accounts - representing close to one-third of all its 29,000 accounts - could be handed over to the Central Bank as required by law.

Noting that record-keeping and administration was still being performed on a manual basis as late as 2020-2021, the report said: "The approximately 9,00 inactive accounts/dormant accounts are required to be turned over to the Central Bank of The Bahamas.

"The Post Office Department informed the Auditor General's Office that the bank was contacted regarding the same but required digital records to perform the process. The Auditor General's Office recommends that the digital records be prepared and the Post Office Department proceed with completing the 'turnover' process of the inactive accounts/dormant accounts."

The Government's own financial watchdog added that the Post Office Savings Bank's reliance on manual systems exposed it to multiple risks, including that records and processing controls "are open to fraudulent practices and abuse of the system.

"Errors and fraud could occur and remain undetected for extended periods," its report said. "Manual processing of cash transactions across the integrated banking system could be manipulated. Funds could be misappropriated. Modernisation and transformation of the Post Office Savings Bank is needed.

"The Auditor General's Office recommends advance cutting-edge, effective and efficient digital banking services. Implement automated processes and mitigate risks with strong internal controls across all the Post Offices, inclusive of the cash districts. Enhance ease of doing business and facilitate the financial reporting of the operations with good governance and timeliness."

The Auditor General's Office added that the Post Office Savings Bank, in common with most state-owned enterprises (SOEs), was in non-compliance with its own Act's requirements that annual audited financial statements be tabled in Parliament by June 30 of the following year.

"Compliance with the mandate is not being upheld by the General Post Office as the financial reporting of the annual operations audited financials are not being prepared and tabled in Parliament," the report added.

"Audited financial statements of the Post Office Savings Bank are needed to substantiate the reliability of the information and financial position for all stakeholders and users, inclusive of the Government, for decision-making. Unavailability of audited financials impacts reliability and irregularities could occur and remain undetected for outstanding periods."

The Postmistress General, in response to the Auditor General's Office's findings, agreed that the report presented "a realistic picture" but voiced optimism that future assessments "will capture the results of successful efforts that would have addressed the long-standing recommendations for automated upgrades and generation of financial reports".