BLDC pair netted $160,230 acting as consultants to their own board
Auditor General Heather Jacobs Matthews made ten recommendations for the Bermuda Land Development Company (BLDC) in her Special Report on the Misuse of Public Funds, many of which the board agreed with and has begun implementing. The Public Works Ministry has also responded to some of the recommendations.
The recommendations were that:
1. The board should take steps to recover the $160,000 consultancy fees paid to former chairman Edward Saunders and deputy chairman Leroy Bean.
The board says it has written to both men asking them to repay the fees and instructed legal counsel to review the matter.
2. All consultancies with the company should be supported by formal, pre-authorised contracts.
The board agrees and says it has already prepared new financial policies and procedures and is reviewing all consulting contracts.
3. The company’s code of ethics should be updated to make it applicable to its directors [board members] as well as employees. The code of ethics should be clear on matters of conflict of interest and how these should be handled. Any breach of the code of ethics should incur a surcharge or penalty and this should be clearly identified in the code.
The board agrees and says an updated code is under review by the directors. Appropriate penalties for breaches will be considered.
4. The code of ethics should be reviewed and signed on an annual basis by directors and employees alike.
The board says each director will have to sign the code annually.
5. Board members should become familiar with the company’s by-laws to ensure full compliance.
The board says BLDC’s by-laws will be circulated to directors annually.
6. Board members should vigorously challenge the conduct and decisions of other members whose actions violate the principles of good governance.
The board “very much” agrees with this recommendation and has placed a heightened focus on governance since it was appointed in May 2011.
7. Government should define the roles and responsibilities of those directly involved in the governance of all boards (i.e. the Minister responsible, the board chairman, other board members and senior civil servants).
The Ministry says it will forward this recommendation to the Cabinet Office.
8. Governance training should be developed and members of all government boards should be required to take such training within a reasonable period after their initial appointment.
The Ministry says it will forward this recommendation to the Cabinet Office.
9. The Department of Internal Audit should be requested to conduct a risk assessment and internal review of governance issues.
The Ministry says this is a “somewhat nebulous” recommendation but will be shared with the Cabinet Secretary. Mrs Matthews responds that the Department can “conduct any review it deems fit at any time”.
10. Best practice procurement guidelines should be followed when seeking consultancy services to ensure that value for money is achieved.
The Ministry agrees and says this will be addressed through the Ministry of Finance’s new Office of Project Management and Procurement.
In early 2010, when the Bermuda Land Development Company’s board approved the payment of consultancy fees to chairman Edward Saunders and deputy chairman Pastor Leroy Bean, an approximate figure of $14,000 each was settled upon.
The two men were to conduct an “assessment of the operations of the company,” further to a suggestion by Works Minister Derrick Burgess, with the expectation that their inquiries would be completed by the end of March.
But the lucrative $110-an-hour work continued for many more months, with the pair ultimately netting a total of $160,230 between them, all courtesy of Bermuda’s taxpayers.
So discovered Auditor General Heather Jacobs Matthews when she began delving into why the publicly funded BLDC, which manages the Island’s former baselands, gave contracts to two members of its own board.
She found that Mr Saunders and Mr Bean, both of whom have served as PLP branch chairmen, began work on their assessment in February 2010, before the six-member board had formally approved any payment figure.
On March 23, 2010, the $110-an-hour rate was agreed and the payment of “approximately $14,000 each” was approved.
The chairman and deputy chairman submitted invoices for work done between February 19 and March 12 and were paid $28,160.
They were to finish their assessment by the end of the month and provide the board with a detailed report, submitting further invoices for the period of March 13 to March 31.
But Mrs Matthews states in her Special Report on the Misuse of Public Funds that invoices for $53,680 for work done up to April 30, rather than March 31, were submitted.
“They were not explicitly approved by the board. Instead, they were approved by a subcommittee of the board. Although the company’s by-laws permit the board to delegate any of its powers to a subcommittee, we could find no record in board minutes that such delegation had been made.”
She says Mr Saunders received $74,525 and Mr Bean $85,705 for work done between February and December 2010.
Of the $160,230 total, only $81,840 was formally approved by the board or reportedly approved by its subcommittee.
The remaining invoices, totalling $78,390, were not formally approved.
The Auditor found that one member of the board twice warned, at meetings in August and September 2010, that paying out costly consultancy fees to the chairman and deputy chairman could be “deemed as a conflict of interest”.
The payment of the fees was discussed at six board meetings and Mr Saunders and Mr Bean were at five of those, including the two where the conflict issue was raised.
The Base Lands Development Act 1996 requires the Works Minister to consult the Finance Minister before giving any direction to the BLDC.
But Mrs Matthews said she was not provided with written evidence that such a direction had been given before the consultancy work began or that Finance Minister Ms Cox was consulted.
She said Ms Cox, a shareholder in the quango, was not even told about the consultancy work at BLDC’s annual general meeting for 2010.
The Auditor uncovered the payments during an audit of the company’s financial statements and wrote to BLDC’s chief executive officer in December 2010, as well as the chairman, copying in Ms Cox.
She asked that her concerns be brought before the board, that the consultancy be terminated and the fees be repaid.
Mr Saunders replied on December 21, 2010 “expressing his view that the company had every right to enter into the paid consultancy arrangement, which was supported by the Minister of Works & Engineering”.
A letter was received from the CEO on March 2, 2011 informing the Auditor that the board “took the view that the company’s by-laws allowed for such payments to its directors”.
Ms Cox stepped in on December 30, contacting Mr Burgess, who was by now Deputy Premier, to say she supported the recommendation of Mrs Matthews regarding the repayment of fees and recommending Mr Saunders and Mr Bean vacate their positions.
The report states: “The chairman and the deputy chairman refused to vacate their positions and the Minister of Public Works took no action in that regard.”
On February 7, 2011, almost a year after the consultancy work began, the permanent secretary of Public Works wrote to the CEO to confirm that the Works Minister had authorised the company to engage the services of the board’s chairman and deputy chairman.
The letter said Mr Saunders and Mr Bean were tasked with reviewing the finances and overall management of BLDC, producing a report by the end of April 2010 and managing the company from September 21 to December 5, 2010, during the CEO’s absence. The report has not yet been made public.
On April 1, 2011, Ms Cox took BLDC from under Mr Burgess’s control and gave delegated responsibility to the Environment Minister. The board was disbanded on May 12 and a new board appointed.
Mrs Matthews states: “The Premier/Minister of Finance is to be commended for taking prompt action in these matters once brought to her attention by the Auditor General.
“However, despite the current board’s reported action to recover the consultancy fees, at the date of this report (December 2011) the amount remains unpaid. Equally disturbing is the fact that no one has been held accountable for these breaches.”
She concludes: “It is not clear why the previous board felt it appropriate to approve the consultancy arrangement with the chairman and deputy chairman instead of contracting with qualified third parties to provide consulting services.
“The consultancy arrangement placed both the chairman and deputy chairman in a fundamental conflict of interest given their oversight role in the company. The actions of the chairman and deputy chairman clearly represent a breach of fiduciary duty.”
Mr Saunders choose not to comment when contacted yesterday. Mr Bean could not be reached via e-mail or telephone.
Mr Burgess, who is now Transport Minister, said in a statement released through his Ministry: “The actions of the Bermuda Land Development Company board of directors was within the by-laws of the company and also complied with the Companies Act 1981.”
He said public accounting firm KPMG and law firm Trott and Duncan determined that the board’s actions were entirely legal.
“For the Auditor General to think that she is above the law is shameful. It seems as if Ms Matthews is on a personal witch hunt and to suggest that any wrongdoing took place is outrageous and clearly an attempt to malign the integrity of those implicated in her report.”
PLP backbencher Dennis Lister is the current chairman of BLDC. He could not be reached for comment yesterday.
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