KPMG report on Sandys 360
Burch does a 180 on Sandys 360
Public works minister Lieutenant-Colonel David Burch backed down yesterday on a pledge to withhold from taxpayers a financial report into a publicly funded failed sports centre.
Colonel Burch released a redacted version of the KPMG report on Sandys 360 less than three weeks after he told Parliament it would remain under wraps.
He told a press conference he had received new legal advice from the Attorney-General, which meant the report could be released.
However, he said its disclosure would not “mean a whole hill of beans” to taxpayers, claiming: “All of the information is already in the public domain.”
The 101-page document shows that almost $6 million of public money was ploughed into Sandys 360 before April 2014.
The Royal Gazette revealed in February last year that the amount was at least $5.3 million and probably more.
Professional services firm KPMG was commissioned to carry out its review after Sandys 360 Sports, Aquatic and Enrichment Centre shut its doors in November 2013, unable to generate enough income to pay for its running costs.
The report notes that in 2011 there was $1.6 million of public money given to the centre “under no specific terms but understood to be for bringing capital debt arrears up to date”.
It was already known that two sums of $807,000 were paid to Sandys 360 that year, one of which was a duplicate payment made in error, according to a 2015 report by former auditor-general Heather Jacobs Matthews.
The erroneous payment has never been recovered and Sandys 360 also owes the public purse unpaid land taxes, payroll taxes and social insurance.
KPMG said in its conclusion: “While the scope of our work was limited and we have not yet reviewed third-party evidence, we have not seen any indications of large-scale, inappropriate payments being made.”
The report shows that as well as $5.8 million of public money, the centre received $2.4 million in corporate donations and $231,000 in individual donations.
The trustees of Sandys Secondary School, who ran the centre, received $9.5 million in loans and overdraft facilities from HSBC to build the facility.
Parliament approved a plan in March 2018 for taxpayers to bail out the trustees by buying the centre and surrounding land with another $1 million of public money.
Colonel Burch said yesterday that since then, negotiations with HSBC, the mortgage lender, had stalled “as a result of a third party laying a claim to some indebtedness from the trustees of Sandys 360”.
He added: “Until that is resolved, we cannot proceed.”
The minister did not name the third party.
The Royal Gazette reported last year that BCM McAlpine was still owed more than $1 million for building the centre. No one from the construction firm could be reached last night.
KPMG said in its report that the trustees were insolvent and the sale of the property “should be dealt with in the context of a formal insolvency process, under the supervision of the Bermuda court, with all associated protections for and accountability to stakeholders”, including the creditors of the trustees and Sandys 360.
It detailed various options for the centre’s future but added: “None of these options, including a government purchase, are likely to result in any repayment of the debts of any unsecured creditors of either the trustees or [Sandys 360], including former employees, BCM and trade payables. There appears no realistic option which could achieve this.”
Colonel Burch told the House of Assembly earlier this month that he was guided by the Attorney-General’s Chambers when he announced that the KPMG document would be withheld.
The minister said on July 5 that the Government would defy an order from Information Commissioner Gitanjali Gutierrez for the Department of Public Lands and Buildings to release the document.
He said one week later: “I’m not making decisions of this nature on my own.
“The Attorney-General’s Chambers of this island are the ones who actually gave the advice not to release the report.”
Colonel Burch said yesterday: “I am pleased to release the report following the revised legal advice from the Attorney-General’s Chambers who conducted the review.”
He added: “I’m not going to get into the lawyer’s mind but the advice that I received previously was that the report could not be released because it wasn’t commissioned or paid for by us.
“That advice has now changed and so I’m following it, as I did previously.”
The KPMG review began when Trevor Moniz was public works minister under the former One Bermuda Alliance administration.
Colonel Burch said he was informed that Mr Moniz told the Sandys Secondary School trustees they would receive further government funding if they agreed to commission the review during a May 2013 meeting.
Colonel Burch said the cost of the report was estimated at between $120,000 and $150,000. The KPMG report indicates that at least some of its fees were to be paid from a $420,000 cash balance held by the trustees.
The report was delivered to the Government in April 2014, after Patricia Gordon-Pamplin replaced Mr Moniz as works minister.
She was succeeded in that role by Craig Cannonier, now the Opposition leader, in January 2015.
The Royal Gazette submitted a Pati request for the report to the Department of Land and Buildings in December 2015.
It rejected the request and that refusal was appealed to the ICO by the newspaper in April 2016.
Ms Gutierrez said in a decision published in May this year that the KPMG report had to be released.
Colonel Burch, who became the public works minister after the Progressive Labour Party swept to power in July 2017, said yesterday: “The former government rejected a Pati request to release the report stating it was exempt from disclosure because it was provided in confidence.
“I will leave it to others to ask why a Pati request lied dormant for almost three years without even a whisper, then suddenly in 2019 an order for its release is issued.”
Ms Gutierrez said last night the ICO “has had a backlog of cases, which is typical in the first few years of a new ICO”.
She added: “In 2018, we devoted more resources to our reviews to improve this and it has resulted in an increase in decisions and case closures.”
Colonel Burch said the redactions in the report were carried out “in accordance with the directive of the Information Commissioner and all refer to personal information exclusions”.
In the document he released yesterday afternoon, the name of an individual was mistakenly included.
Page 29 refers to a “Dr Bassett” being owed $0.2 million for a private loan given to the centre.
The reference is believed to be to Melvyn Bassett, the former principal of Sandys Secondary Middle School, who became the salaried managing director of Sandys 360 when it opened its doors in September 2009.
Colonel Burch said of the report’s release: “Clearly this is something that two OBA ministers, at least, could have resolved rather than a ridiculous circus they have engaged in of accusing the present Government of hiding something, particularly in light of their recent utterances to release the report.”
Mr Cannonier said last week that the OBA did not release the report when it was first requested “because it needed to finish negotiations on a price for the centre” and that it should now be released. He added: “What’s to hide?”
He said last night: “I am glad that the minister has finally agreed to obey the law. It was an absurd situation to see someone involved in making laws, flout the law and I am glad the minister is finally setting a good example to others.”
Key points from KPMG financial assessment
• The centre, on Broome Street, in Somerset, was built with a $9.5 million loan and overdraft facility from HSBC and $1 million of public money
• It opened its doors in September 2009 and closed them in November 2013, at which point it owed Belco $379,000, which was three years’ worth of bills
• While open, it relied on government grants and corporate donations to pay its running costs and pay back the HSBC debt
• The total contribution from taxpayers was about $5.8 million from 2008 onwards
• Corporate donations to the centre totalled $2.4 million and there was $231,000 in individual donations
• Payments to BCM McAlpine, which built the centre, totalled $10.5 million
• The bank reduced the interest rate on the $9.4 million debt to 0.25 per cent in September 2013
• Sandys 360 had “known liabilities of approximately $1 million and additional liabilities for redundancy payments due to employees that have not been quantified and intercompany debt”
• The liabilities included the $379,000 to Belco, $362,000 of unpaid payroll and private loans of approximately $135,000
• Its only assets were gym equipment and furnishings, likely to be worth significantly less than their “book value” of $300,000
• Sandys 360 and the Sandys Secondary School trustees had “not maintained comprehensive accounting books and records since the centre opened. As a result ... the accounting system ... cannot produce accurate financial statements”
• Annual payroll costs were on average $850,000, which management acknowledged were “too high”
• Management acknowledged the centre was “significantly overstaffed in the past, particularly in relation to salaried employees”
• Between January and November 2013, the centre had an estimated 20 users a day, on average, not including Sandys Secondary Middle School students
• It had about 60 to 85 members and 1,095 individuals used the centre in 2013, 553 of them using it only once
• The centre’s roof had a “longstanding physical defect, which results in significant leaking into the centre whenever there is heavy rainfall ... management has had the original contractor, BCM, inspect the site on several occasions and they have to date been unable to resolve this issue”. Remedying the problem could “incur significant capital expenditure”
• Unsecured creditors of Sandys 360 and the trustees were unlikely to have their debts repaid, whatever happened to the centre in the future
• The centre and the trustees were given $400,000 in “private loans” including $200,000 from a “Dr Bassett” — presumed to be Sandys 360’s salaried managing director Melvyn Bassett
• KPMG recognised the “deep commitment and passion that management has for the centre” but said there “may be merit in a ‘clean break’”
•To read the KPMG report, click on the PDF link under “Related Media”
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