Fri | Apr 23, 2021
Our Jamaica

Government processes questioned

Published:Monday | April 5, 2021 | 6:09 PMJovan Johnson Senior Staff Reporter
A section of the NIF-owned Melia Braco Village resort in Trelawny.

Billions of dollars have been spent on investments related to the National Insurance Fund and while that by itself isn’t surprising, what is, is The Gleaner report on an audit which suggests the spend has not been properly accounted for.

Published April 1, 2021

BILLION$ MESS

Audit raps NIF resort arm for unjustified payments, shoddy records, lack of value for works

A CARNIVAL-LIKE splashing of at least $3 billion of taxpayers’ money from a ministry with responsibility for Jamaica’s poorest dominates the findings of a 2018 audit of the National Insurance Fund Resort Management Company Limited (NIFRMCOL).

The audit, which covers the period January 2013 to July 2017, highlights a lack of oversight over a period that straddles People’s National Party (PNP) and Jamaica Labour Party (JLP) administrations.

ACARNIVAL-LIKE splashing of at least $3 billion of taxpayers’ money from a ministry with responsibility for Jamaica’s poorest dominates the findings of a 2018 audit of the National Insurance Fund Resort Management Company Limited (NIFRMCOL).

The NIFRMCOL is a subsidiary of the National Insurance Fund (NIF), the State’s pension fund, which is an agency of the Ministry of Labour and Social Security (MLSS).

The NIF, which had assets of $120 billion in 2019, is financed by an insurance tax from which government pensions and other benefits under the National Insurance Scheme are paid.

The audit, which covers the period January 2013 to July 2017, highlights a lack of oversight over a period that straddles People’s National Party (PNP) and Jamaica Labour Party (JLP) administrations.

The NIF is tasked with investing pension contributions and does that partly through the NIFRMCOL, which oversees t ourism-based assets, which include the NIF-owned Braco Village Hotel in Trelawny.

The hotel is under the management of the private Spanish chain Melia Hotels International.

Auditors said that they “could not confirm” the total amounts spent on renovation and refurbishing of the 232-room property, which reopened in 2015, but have found it difficult to deliver any profit while depending on taxpayer bailouts.

The approved renovation budget was approximately US$23.5 million (J$2.7 billion), which did not include US$2 million (J$234 million) for architects, project management, quantity surveyors, and plumbing, among other services, noted the audit, a copy of which has been obtained by The Gleaner.

NO VALUE FOR MONEY

Record-keeping was shoddy, blocking any investigative authority from truly determining the state of affairs but enough for the auditors to conclude that the NIF “has not received value for money” and that the ministry would be “exposed to reputable damage if public disclosure is made of the non-compliance with government regulations”.

In fact, the investigators said that their work was limited because “several pertinent” records requested from the NIF and its subsidiary were not received.

The documents related to the hotel management, evaluation reports, and financial statements cover the period January 2013 to July 2017, when the auditor said the resort company took many decisions without going to its parent, the NIF.

While “some” government procurement rules were followed, the auditors concluded that in “some instances, contracts were not properly executed as only draft agreements or unsigned ones were submitted for examination”.

Funds were allegedly paid to several contractors to provide similar services, and invoices were not endorsed to indicate whether goods and services were received or provided satisfactorily.

“As a result, the audit could not confirm whether there was value for money as the basis for establishing contract fee was not documented, and in some instances, contractors were terminated after significant sums were disbursed,” read the 41-page document.

Among the flagged procurement violations was the absence of any documentation to justify how a company was engaged for “exclusive advisor” to help the NIF select a manager for the hotel for the period November 15, 2012, to December 22, 2014.

The entity was paid US$471,450, of which US$255,730 related to professional fees covering project coordination, developing templates for evaluation, and liaising and conducting meetings.

But the auditors said that they received no document that indicated that the contractual arrangement with the company extended to project management.

In another case, US$256,200 was paid out to a company under a contract that was not signed until almost one month after the contractor was fired.

Then there was the case of NIFRMCOL paying more than US$1 million to three consultants to provide the same project-management services although there was no provision in the renovation budget for those services.

Another case involves the provision of mechanical and electrical engineering consultancy and a company that was fired after collecting J$22 million for services.

After that deal soured, the NIF permitted the engagement of three different consultants for the same services totalling J$44.4 million, claimed the audit.

In additional details, the internal audit noted that a previously reported transfer of J$187 million from the NIF to its subsidiary took place over the period February 12, 2017, to June 29, 2017, without approval from the NIF board or the permanent secretary.

Other questionable transactions include the 2017 purchase of a US$400,000 tent. A 50 per cent deposit was paid down, but invoices later showed that the size of the tent was upgraded and the final cost was an additional US$86,000.

ENVIRONMENTAL VIOLATION

There was also apparent disregard for the country’s environmental laws as the auditors said that there was no evidence that a permit from the National Environment and Planning Agency was sought and obtained before the construction of a dock and other beach excavations projects.

There were several cases of alleged overpayments, including instances in which J$6 million was paid to two contractors to remove garbage from the Braco site. One of the contractors claimed for 22 trips when records only showed 15 trips.

It has also been revealed that in April 2016, the Jamaica Customs Agency fined the NIF’s resort management company J$1.3 million for a making “false declaration”.

Also flagged were the payments of board fees, in breach of finance ministry regulations, which state that employees with executive positions were not eligible for board fees from their employing organisations.

For the period January to December 2016, at least two senior MLSS officers received board fees amounting to $64,500 from the NIF and its subsidiary. Others reportedly benefited.

Records also showed, the auditors said, that select officers employed to the NIF received additional but unjustified compensation.

For 2014 to 2016, J$15.3 million in honorarium and other emolument was paid to persons from NIFRMCOL and other companies established by NIF without required approvals.

The internal audit report is expected to be discussed at next week’s meeting of the Public Accounts Committee (PAC) of Parliament, which has been grilling the labour ministry over the breakdown of controls and tardiness in following up on internal audit recommendations identified internally and through reports from the auditor general.

Colette Roberts Risden, the permanent secretary in the ministry since 2015, is the chief accounting officer and has been leading MLSS officials to PAC hearings.

She replaced Alvin McIntosh, who is now the chairman of the Public Service Commission.

In January, The Sunday Gleaner quoted senior officials of the current Andrew Holness-led JLP administration, arguing that the Portia Simpson Miller administration “must shoulder” some of the blame for a “poor” agreement struck with Melia that they claimed put the NIF at a disadvantage, resulting in millions in expenditure, in a rush to open the hotel in December 2015.

The JLP administration has been in power since March 2016, taking over from the Simpson Miller-led PNP, which ran the government from January 2012.

Derrick Kellier and Dr Fenton Ferguson were labour ministers under the Simpson Miller administration.

The late Shahine Robinson took over in 2016 followed by Mike Henry, who held the portfolio briefly in mid-2020.

Karl Samuda, the current minister, was appointed in September 2020.

The NIF chairpersons over the period were Lennox Elvy (20162020), who resigned in January from the board of the resort company, and Ralston Hyman (2012–March 2016).

Ian McNaughton is the current chair.

A new resort board has not been named.

The Melia-NIF contract included a provision for guaranteed returns to the NIF as owner, which was conditional on the hotel being profitable after the first year of operations.

This ranged from US$7,000 per key in the second year of operations to US$7,577 in the sixth year of operations, based on the agreement seen by The Gleaner.

A clause, however, stated that if targets were not met, a payment would still go to the NIF.

Not many details on the hotel’s financial performance have been published, but The Gleaner reported in 2018 that preliminary information for 2016 suggested that the hotel made an operating loss of approximately $550 million, a near 200 per cent underperformance of the projected target.

Losses totalling approximately $125 million were recorded in 2015; $535 million in 2017; and 2018 showed a gross operating profit of about $53,000, leaked data suggest.

A cache of emails also showed a robust debate involving senior officials of Melia trying to figure out when the operating year starts to determine payments to the Government.

jovan.johnson@gleanerjm