Lax financial controls mean $6.5 million has already been paid out without supporting evidence for the Police/court project, with more likely to follow, says Auditor General Larry Dennis.

And he wondered what had happened to the $960,000 Government forked out for a performance bond, as contractors are now inexplicably pushing for an additional $800,000 for a bond and insurance.

In a hard-hitting special report released to Parliament yesterday, Mr. Dennis voiced grave concerns about the way the $78 million project in the heart of Hamilton was being handled.

He said:

¦ Works and Engineering Minister Derrick Burgess had urged staff to amend a letter written by the certifying architect to say that a decision to relax financial controls was a Ministry decision, not his own

¦ Mr. Burgess ordered staff not to cooperate with Mr. Dennis' audit team only relenting when the Auditor General threatened legal action

¦ A new contract signed in late 2008 meant builders no longer had to provide invoices before getting reimbursed by Government for work sparking fears taxpayer money could be ill-spent.

Mr. Dennis' report reveals repeated problems with cash flow on the Hamilton site originally managed by Landmark Lisgar a joint venture company chosen against the advice of Government's technical officers.

Work was timed to start before the December 2007 election, said Mr. Dennis. But by late summer 2008 the project was behind schedule and the Canadian firm Lisgar had fallen out with their Bermuda-based partners Landmark.

Eventually the Canadians departed or were pushed out, leaving Landmark, a small company with no experience with construction projects that size, as sole contractor, said Mr. Dennis.

The company changed its name to LLC Bermuda and was immediately given a $600,000 advance.

As Mr. Dennis puts it: "This was 11 months into a 30-month project that was at least four months behind and the contractor was already experiencing cash flow problems and needed a cash injection."

While it might have been Government's only option at that stage the company should have been properly vetted to ensure it was financially capable of undertaking the project, said Mr. Dennis.

There was no evidence the Ministry had probed whether LLC had the finances to support the contract.

The Auditor General's office said the company would struggle without upfront accelerated payments and he predicted deductions by Government for retention money in lieu of a bond would likely be decreased to ease cash flow to LLC.And he voiced concern the new contract had cut out expert scrutiny of how money was being spent as the company was not forced to submit invoices."Under the original contract, the Ministry's Department of Architectural Design and Construction received copies of all correspondence, progress report meetings and meeting minutes to enable it to monitor the project's progress."Since the new contract was put in place, technical control at this level has been removed and this information now goes directly to the Permanent Secretary."What concerns me most as an auditor however, is the failure of the new contract to require LLC to provide invoices with every progress payment submission."Government can demand such information but it's not stipulated when applications for payments are made."To date, under the new contract, $6.5 million has been paid without verifying amounts to receipted invoices."Mr. Dennis said such contracts might be acceptable in the private sector but not when public money was at stake.By late October with work lagging, Government's project manager and certifying and chief architect expressed concern about the legitimacy of some claims, wrote Mr. Dennis.And by October 31, 2008, $12.8 million had been claimed but the certifying architect refused to certify more than $2.7 million something that usually happens where claims are not backed up by invoices."However on the Permanent Secretary's instructions, $384,000 of these unsupported claims were processed against financial instructions."Mr. Dennis said Government policy prohibits the Ministry paying construction cost claims that have not been certified by a certifying architect a policy included in the original contract.Mr. Dennis added:"I see nothing in the new contract to prevent the $2.7 million that was rejected in the first seven payment requests, from being filtered into the unsupported claims in future requests."The certifying architect also refused to certify withdrawals on the $10.7 million administration fee promised to the company. LLC was supposed to be given portions upon percentage of work completed but the builders wanted it quicker."If paid this would have accelerated considerably the payment of the administration fee and, unless the project comes in on time, the administration fee would be fully paid before the project was completed."However Works and Engineering Minister Derrick Burgess ordered the fee should be paid quicker, overruling what was in the contract.The certifying architect stopped approving administration fees and wrote to the Ministry's chief architect to voice concern about the Minister's decision.Mr. Dennis said: "It is disturbing to note that a December e-mail from the Permanent Secretary to the Ministry's chief architect states that the Minister is instructing the chief architect to alter the certifying architect's September 4 letter to indicate that allowing the contractor to charge administration fees on a straight-line basis was a Ministry decision, not a Ministerial decision."My audit indicated that the Minister was involved at below-Permanent-Secretary staff levels within the Ministry (and) that supports my position that this was a Ministerial decision."Mr. Dennis said the new architects who took over in late 2008 pushed through a November claim for $3.2 million. As the claim fell under the time frame of the old contract it required supporting documentation. According to the Auditor General, there was little to back it up.And another $665,000 of administration fees was doled out. "The financial prudence necessary to protect the Government's position is being eroded to inject cash into an under-financed contractor," said Mr. Dennis.He became so concerned about the lack of documentation for key payments and the breakdown in internal controls that he would have to deliver a qualified auditor's opinion for the Consolidated Fund (see separate story).In January this year he wrote to express his concerns to the Finance Ministry, which then replied saying the new contract would have the same safeguards as the first one."However payment certificate 10, which was submitted in February, does not follow this instruction. "I understand however, that the contractor has since been instructed to supply all back-up documents not supplied with past requests for payment, and to include them with all future requests for payment."At that point Mr. Burgess wrote to question whether Mr. Dennis was lawfully authorised to conduct an audit at this stage of construction.And the Minister rescinded his earlier instruction that his Ministry to give full cooperation to the Auditor General's team."He asked me to inform my staff to discontinue communicating with Ministry personnel."Dubbed unprecedented and unconstitutional, that instruction was also contrary to the Audit Act which said those who obstructed would be liable to fines and imprisonment, said Mr. Dennis.So he gave the Permanent Secretary a deadline of February 11 to withdraw the non-cooperation instruction or legal proceedings would follow.With one day left on the deadline, the Permanent Secretary said staff would now cooperate with auditors."In my view the above series of events indicated that at various stages the Minister and Permanent Secretary of Works and Engineering interrupted and compromised key internal controls designed to protect the Government's rights and assets."The events cast doubt on the propriety of some of the payments to Landmark Lisgar/LLC."Deliberate blocking damaged the audit process and drained time and resources, said Mr. Dennis, who said it demonstrated "how fragile is the Auditor General's independence".l Last night, in response to questions from this newspaper, a spokesman for the Ministry of Works and Engineering said: "The Ministry of Works and Engineering will respond the questions on the Auditor General's report at the appropriate time."

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