The Auditor-General’s investigation into the finances of the Bermuda Hospitals Board was triggered by a “hidden” $4 million it set aside to pay a patient who was paralysed while in its care.

The board believed a liability existed in the case of former guest worker Thomas Hofer, who suffered a broken neck at St Brendan’s mental hospital, and recorded the accrual as an “administrative expense” in its accounts to ensure it wasn’t visible to the general public, The Royal Gazette can reveal.

But the decision was not included in the minutes of the BHB’s meetings, prompting suspicions of fraud on the part of the Auditor-General, who ordered an official review of it and other areas of concern by the Department of Internal Audit in February 2013. The public has only ever been given a summary by the BHB of the findings of that review, which included evidence of “serious deficiencies” in the board’s corporate governance framework and “material weaknesses” in internal controls, revenue processes and other areas.

But this newspaper has become aware that Mrs Matthews raised concerns with BHB chief executive officer Venetta Symonds about potential fraud or collusion after the $4 million set aside for Mr Hofer, who was paralysed in 1994 and launched a personal injury lawsuit in 1997, was queried by a member of her team.

Mrs Matthews questioned why the board’s chief financial officer had “hidden” the $4 million as an administrative expense, instead of showing it as a claim expense or contingent liability.

The BHB removed the entry after the Auditor-General threatened to give only a qualified opinion on its financial statements if it remained in place.

As part of the Auditor-General’s review process, the board’s CFO was put on administrative leave. In April 2014, the BHB said she had been cleared of any wrongdoing by auditors but the CFO had decided to quit her post after more than a year on paid administrative leave.

The board said the CFO was found to have “acted properly, appropriately and with all professional integrity”.

Mrs Matthews released a statement the following month saying she remained very concerned that a “significant, unsubstantiated financial transaction was admittedly concealed in BHB’s financial statements”.

She has made no public comment on the matter since and the board’s audited financials for 2012 to 2015 have yet to be released to the public.

Mr Hofer’s lawsuit collapsed in August, when the Chief Justice struck out the action on the basis that it had taken too long to come to trial.

The judgment means the BHB will not have to pay any compensation to the former chef, who returned to Germany after his accident and has lived there ever since, costing his home country some $11,000 a month in around-the-clock care.

Asked about the $4 million accrual, a board spokeswoman told this newspaper: “BHB reserves funds for potential litigation. This is not specifically for one case. No additional funds were reserved for this case.”

But the statement contradicts documentary evidence seen by this newspaper, in which the Auditor-General writes that the Hofer accrual was noticed during an audit of the board’s draft 2010-11 finances and “appears to be a fraudulent claim”.

The BHB asked the Auditor-General’s office to sign a confidentiality agreement requiring it not to disclose the claim so as not to reveal the amount to Mr Hofer or any other claimant in the case. The Auditor-General refused.

The evidence shows that the BHB, which filed a defence to Mr Hofer’s claim and applied twice to have the action struck out, believed it bore a significant financial risk with the case and anticipated a settlement.

It is understood that the former CFO made the decision to set aside the funds, in conjunction with former CEO David Hill, in the belief that the BHB had an obligation to compensate Mr Hofer, as his injuries occurred while in its care.

The BHB has never admitted liability in the case.

It was not possible to reach Mrs Matthews, who retires later this week, for comment. She is expected to soon issue outstanding annual reports from her office, which should include a synopsis of the issues arising from the Internal Audit review of the BHB’s finances.