Serious failures in the financial management of two major bank accounts controlled by the former Ministry of Housing and National Insurance constituted a contravention of the law and financial regulations, The Nassau Guardian can reveal exclusively.  The findings were uncovered during an independent Value for Money (VFM) audit of the ministry. The audit was contracted by the Office of the Auditor General and carried out not long after the Free National Movement took office in May 2007.

The VFM, conducted by Crown Agents, took place in May and June of 2008, but its results have not been made public until now.  A VFM audit focuses on efficiency, effectiveness and economy of use of public resources.  The audit was conducted by interviews, observations, and examinations of documents.  The emphasis was on systems controls and risks in the use of funds.  The report, which followed a police investigation into corruption allegations at the ministry in 2007, raises serious concerns related to the performance and management of the housing program over a number of years.

These concerns include the findings that some funds meant for the housing program were used for other purposes; external audits did not appear to be available for major accounts in the ministry for many years at a time; and a "vacuum of accountability" existed at the ministry when it came to financial management.  The special accounts referred to in the report -- Corporation Sole Account and Mortgage Insurance Fund -- operate outside of the normal Public Treasury accounting system.

 Both accounts are established by the Housing Act.  "There has been an inexplicable failure in the financial management of the two special accounts at the Ministry," said the report obtained by The Nassau Guardian.  "Account statements and audits do not appear to exist for the two major accounts for any year after 1998.  Worryingly, the broader external controls of government also failed to flag this issue for nine years."

The report notes that the Sole account controlled by the minister and his team and known officially as the "Housing Department Administrative Expenses Account", was used for a variety of expenditure.  As of April 30, 2007, the balance of the account was $552,715.38.  According to the last audit at the time of the report -- 1998 -- the cash balance stood at $693,000.

However, housing documents -- not referred to in the report but obtained by this newspaper -- put the cash book of the Sole account at $2.8 million in June 2002, and by the end of April 2007, it stood at $89,465.31.  In addition to expenses related to housing development, it was revealed that the account was also used to pay for computers for the Urban Renewal Office, consultants to the Urban Renewal Commission and payments related to post-hurricane relief on behalf of NEMA.

"In addition to payments outside the subject (housing) program significant expenditure in 2006/2007 covered the salaries of up to 25 contracted staff.  Some of this salary expenditure was continuing at the time of this review," the report said.  Crown Agents said that based on interviews of the ministry staff and officials conducted as part of the assessment, there was a strong view in several quarters that the Sole account's intended purpose was to meet additional or unplanned subdivision infrastructure costs and to allow receipt and payment of funds such as mortgage proceeds from private sector approved lenders.

Guidelines to this effect had previously existed but none were available at the time of the assessment, according to the report.  Senior staff within the ministry also told Crown Agents that the account was critical to the program, providing the necessary flexibility to meet its needs.  The report noted that the Sole account is at significant risk for abuse of funds and achievement of value for money.
 
MORTGAGE FUND ACCOUNT

Crown Agents said similar financial management issues were seen in the Mortgage Fund account, which holds the insurance premiums for each loan issued by the Bahamas Mortgage Corporation. According to the report, the balance of the insurance fund account was just under $12 million as of April 30, 2007.  It was noted in the report that a copy of the bank statement was requested in order to obtain a current balance but was never handed over.
Crown Agents had to use the figure taken from the Auditor General's audit of the corporation Sole account and included $10.6 million in fixed deposit certificates and a $1.3 million current account balance.

"Although required by chapter 199, account statements and audited accounts are not available beyond 1998.  We even experienced difficulty in getting information on the current bank balance via a copy of the latest bank statement," said the report.  According to the report, the last external audit laid before Parliament appeared to be those for 1997 and 1998. After that, there is evidence of activity by auditors Rankin, Elias and McDonald in relation to these accounts.

Auditors had requested a meeting with the permanent secretary in January 2000 to establish some concrete procedure relating to the Sole account. But in June of 2002, the permanent secretary instructed that auditors not continue with any work; and in October 2002, at the request of then Minister of Housing and National Insurance Shane Gibson, Rankin, Elias and McDonald was replaced with Pannell, Kerr and Foster.

Despite the termination of Rankin, Elias and McDonald, payments continued to the firm, based on Sole account vouchers.  A total of $21,800 was paid to Rankin, Elias and McDonald between November 21 and December 18, 2003 for audited statements for the Mortgage Insurance Fund and Corporation Sole accounts, the report said.  "Despite this evidence of correspondence and payments, statements and audits for this extended period appear to be unavailable," said the report. "This represents an inexplicable failure of management and basic controls within the ministry.

"Further, it raises questions related to monitoring of controls by the Ministry of Finance and the Treasury."  It is understood, according to the report, that the firm Grant Thorton had to conduct audits for the periods previously covered by payments to Rankin, Elias and McDonald.
The report recommended that consideration be given to closing the Corporation Sole account and for it to be substituted by an extra line item of expenditure within the Ministry's budget.
"Without such basic financial management controls, a vacuum of accountability exists," said the report. "The risk of misuse or abuse of funds is high."

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